Hear the latest from our Chief Investment Officer, Jamie Nicol as he discusses the opportunities and risks in the current market for high conviction investors.

 

When we look at the year that’s gone, it’s all been about inflation and inflation expectations. And when we look forward, when we think about where, what the market’s expecting for inflation going forward, we look out to 24 and market’s expecting inflation to come back to around 2%. So back to its sort of normal range. And I, I think that’s quite a negative number for two reasons. One, it either means that that inflation expectations do come to meet that market  levels, which means we face a very soft period for the economy, likely a recession, likely a big, big slowdown, unemployment. Alternatively, it’s incorrect, in which case inflation’s gonna be higher,  which is probably a negative from evaluations. So either way, I think that’s a really important number to focus on that inflation expectations for 2024, because it will have implications for how you’re positioning the portfolio.

Quite two separate sort of situations. What we’re trying to do is have a bit of balance across the portfolio right now. I don’t think, it’s as clear cut as it was a year ago, or the risk return is not as clear cut as it was a year ago, where it very much favoured that the potential for inflation to arise, which the market wasn’t processing at all. And I think the market is pricing that to some degree. Now, when we look at the opportunities going forward, we see two prime opportunities, you know, take advantage of some of the good quality companies that have sold off quite heavily over recent years. You know, that’s companies with very strong returns, perhaps a bit of growth, a bit of duration in, in the portfolios because you can get them cheaper than they’ve been for some time.

So for us, a company like CSL fits that criteria, very resilient earnings. So if we do face, that slow down, that economics slow down, we still think it’s got very resilient earnings, but it’s got a real recovery coming through post COVID. What we’re hearing as the economies begins to slow down in the US you’re seeing queues around the block to, to deliver plasma, to collect the fee that good consumers get for donating plasma. And, you know, that that’s obviously very helpful for their earnings going forward. So I’ve got this big recovery and a very resilient business. At the same time, we continue to see opportunities as, as the world transitions to zero carbon and as the world looks to secure a supply chain. You know, we think there’s a, there’s a large CapEx cycle that has to go on over the, over the next few ye few years. You know, when you think about energy security, be it traditional energy or the move to zero carbon, we think companies that can take advantage of that. So a company like ALS, which is a company we’ve had an investment in for a while, but we think continues to look well placed, reasonably priced, but very well placed for these, this new trend that’s gonna emerge o over over the next decade.

 

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