Active equities beyond the pandemic (part 1): Hunting for growth
By Helen Xiong, Investment Manager, Global Alpha, Baillie Gifford
Periods of change and upheaval such as we are currently witnessing present huge opportunities for the innovative to challenge incumbents and reshape industries – or create new ones entirely. When the status quo is upended, the gap between winners and losers can widen inexorably.
Many industries, including communications, entertainment and retail, have been transformed over the 15 years we have been managing our Global Alpha strategy. However, pivotal areas, such as healthcare, education, real estate and energy, would still be entirely recognisable to someone working in those industries 50 years ago. As investors looking to identify durable growth opportunities, the likelihood of continued flux, the scope for innovation and the potential for new value creation across broad swathes of the economy excites us.
Our task is to find businesses that possess the right elements of vision, ambition and execution to grow at attractive rates for long periods of time. Below are some of the developing themes that are drawing our focus today.
The rapid scaling of new internet technology platforms challenges our thesis that incumbents are protected by scale and that dominant platforms have an enduring monopoly on profitability. We are focusing more on understanding the evolving Chinese digital ecosystem with an eye on the possibility we may see similar developments in the West. We’re also homing in on the likely sources of future digital innovations as we anticipate a more diverse range of winners.
The imperative of societal licence
The era of aggressive capitalism could be in retreat, to be replaced by a new zeitgeist which promotes ‘doing the right thing’ above short-term profit maximisation. Consumers, governments and society in the West now expect more than the basic provision of goods and services at lowest possible cost; they are demanding an increasing environmental awareness and an ethical approach to employees, suppliers and customers, in addition to a great product at a competitive price. Individuals are becoming more discerning, more assertive and more vocal. Businesses that are pro-active in addressing and balancing these demands are likely to be at a significant advantage to their more reactive and flat-footed competitors.
The global energy transition
We are at the beginning of a great energy transition, from a system based on fossil fuels to one based on renewable-energy sources. This throws up important questions around the knock-on effects of moving from a world of energy scarcity to one of abundance – and how would this transition impact the geopolitical landscape?
Global energy transitions are incredibly rare and have the potential to fundamentally reshape the societies we live in. The implications cannot be fully anticipated at the outset but will be felt for many decades to come. Understanding these changes will be vital for any long-term investor.
The year 2020 was traumatic for many, but it also accelerated the reshaping of many industries. Overall, the companies in our strategy were beneficiaries of these changes. Our challenge is to ensure that our portfolio remains on the right side of change.
The Global Alpha team manages 50% of the Vanguard Global Equity Fund portfolio. The other 50% is managed by Wellington Management’s Opportunistic Value team, who will share their views on active equities from a value perspective in the second part of this blog.
To hear more from Helen and other experts in the active equity space, register for our Active Investor Conference here.
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