Interview – David Stewart
That is one of my more fundamental con- cerns as a long-term investor. Growth to an economy is what education is to society. It is the silver bullet, the panacea. With it, everything becomes possible. Without it, everything becomes just that little bit more difficult and some things become absolutely impossible. That hasn’t changed. All the huge rescue efforts that have been put in place – thank- fully within days and weeks, rather than months and years as we saw during the global financial crisis – have been great. But that is about survival, not a leg up on growth potential for the global economy. As far as the disruption in financial mar- kets that we have seen for the past 10 years, if negative interest rates, huge gov- ernment borrowing and state-financed raking of financial markets was the route to an economic nirvana, it would have probably been discovered some time ago. It is much more likely that we are simply putting in place a whole new bunch of distortions and misallocations. What has been done in the past few months has simply amped up those dynamics. Things have not become any clearer or easier for long-term investors.
With that in mind, is it likely we will see the growth a modern capitalist economy needs? We are talking about cumulative levels of growth, so 10% 100 years ago looks different to 10% today. Is that sustainable?
There will be new sources of growth, there is no question about that. My back- ground is as an equity PM. I am not one of these bond guys who is manically depressed, I am hard-wired for optimism. It’s always wrong to bet against human ingenuity and ambition. Where there is human ingenuity and ambition there will be growth. Whether that is in the green economy, medicine or technology. As an active investor that concerns us more than the headline level of a particu- lar index. We focus on areas of growth rather than the wider economy, but gov-
20 | portfolio institutional September 2020 | issue 96
Growth to an economy is what education is to society. It is the silver bullet, the panacea. With it, everything becomes possible.
ernment policy is driven by social issues and the wider economy, so we have to be cognisant of that.
So, the challenge for you as a long-term investor is to identify the areas that will benefit from the changes we are seeing? Yes, and the challenge is that in a low- growth, low-investment return world, accessing high-growth areas is not going to be cheap. That’s perhaps one of the key challenges investors face.
Equity markets certainly seem quite pricey at the moment. I don’t remember a time when they did not seem pricey and people felt good about it. They only seem cheap when peo- ple are feeling terribly depressed about their prospects.
With that in mind, are you planning any changes to your asset allocation? The changes that we make to our asset allocation are more in line with the jour- ney plan than any short-term views on capital markets. It’s not directly answer- ing your question, but we have cut back quite significantly on our tactical asset allocation this year.We took the view that in an environment characterised by
uncertainty rather than risk, there isn’t much value that we, or anyone else, could add reliably and consistently through short-term tactical asset allocation. But the long-term journey plan and de-risking triggers don’t change. That’s the path we are on. This is not an environ- ment where I would want to stray too far from our strategic asset allocation. If you don’t have confidence in the ability of tac- tical asset allocation to consistently add value, then stick to your strategic asset allocation.
For equity investors, might strategic trends emerge?
I am a firm believer in bottom-up views, rather than imposing top-down thematic views. You have a much more resilient, stable investment base to work on when the portfolio is based on hundreds of little decisions rather than making four or five big macro calls. Particularly for long-term investors, it makes much more sense to make a larger number of stock-specific decisions and allow your portfolio to gravitate towards those growth areas than applying a the- matic approach.
Let’s talk about responsible investment. A
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