Five investment trust managers outline the backdrop for their respective sectors, and where they are finding the most interesting opportunities for their portfolios at present.
Japan: Software
Miyako Urabe, investment manager, Japan Small Cap Growth & Income Trust (JSGI):
“Pressure from the Tokyo Stock Exchange has resulted in widespread improvements in corporate governance, with companies across Japan adopting higher business standards and doing more to improve dividends and buybacks, as well as introducing wage hikes for the first time in 30 years. Japanese equities are also benefitting from structural trends such as an ageing population, a move towards digitalisation and the global push towards carbon neutrality.
“Because Japan is only at the beginning of its journey towards digitalisation, Japanese workplace software solutions that are cloud-based have a strong growth trajectory, as they ease the structural shortage of workers in multiple sectors.
“Medley, a healthcare staffing platform and software solution provider, is an example of a smaller Japanese business that is well placed to benefit from this trend, especially as the ratios of job openings to job applicants for healthcare workers is significantly higher than the all-industry average.”
Europe: Electrification
Zenah Shuhaiber, investment manager, JPMorgan European Growth & Income Trust (JEGI):
“Falling eurozone inflation rates, consumer confidence has bounced back across Europe and labour markets remain strong. Meanwhile, concerns around the energy crisis, which loomed over investor sentiment for much of last year, have eased.
“The significant restructuring of Europe’s energy mix and renewed focus on energy security over the past 18 months means that the European industrials sector is an area primed for extensive growth.
“Energy efficient products and companies that enable electrification will likely be a key driver of long-term outperformance of European equities. Prysmian, an Italian high-voltage cable manufacturer, is also one of the few companies that supply nearly all the world’s interconnector cables and is a prime example of a company benefitting from Europe’s accelerated energy transition.”
Asia: Indonesia
Fiona Yang, co-manager, the Invesco Asia Trust:
“Fundamentals are sound in Indonesia. The country has low credit penetration and favourable demographics, and it has diversification benefits given its supply chain outside China.
“One of the most significant developments over the years is the strong foreign direct investment (FDI) momentum further downstream, from nickel mining to processing and battery production, with the goal of creating an integrated electric vehicle supply chain. The country is entering the third consecutive year of current account surplus after staying in deficit for most of the past decade.
“Indonesia will also host its next presidential election in February 2024 and, if the newly-elected government continues to adopt current pro-growth policies, we are likely to see strong economic performance over the next few years.”
Mining: Brown to green
Olivia Markham, co-manager of the BlackRock World Mining Investment Trust:
“We do not expect the mining sector to be immune to deteriorating global economic growth. However, while recession looms for developed markets, the most important economy for mining, China, is moving in the opposite direction, re-opening following a year of lockdowns and a strict zero-Covid policy.
“We view the global energy transition as the most significant factor driving the mining sector over the next five, 10 and 20 years. Last year, we saw greater appreciation of the role mining companies will need to play in supplying the materials required for lower carbon technologies such as wind turbines, solar panels and electric vehicles.
“In 2023, we have seen ‘brown-to-green’ emerge as a key theme, where mining companies are focusing on reducing the greenhouse gas emissions intensity associated with their production and we expect to see a re-rating for the mining companies able to best navigate this.”
Frontier markets: Eastern Europe and LatAm
Emily Fletcher, co-manager of the BlackRock Frontiers Investment Trust:
“What has been unusual about the current economic cycle is that emerging, and frontier countries were the first to see inflation rise and have been the first to see it fall. In addition, we have observed a marked contrast in the monetary and fiscal policy decisions taken in smaller emerging/frontier markets versus developed markets.
“As a result, we expect to see economic acceleration on the back of rate cuts into the second half of the year, particularly those in Eastern Europe and Latin America and are positioned accordingly.
“We would also highlight Indonesia, where we have seen very strong growth in exports, driven by a substantial increase in domestic Nickel production, feeding global demand for electric vehicles. At around 1.5% of GDP, it is resulting in a meaningful reduction in Indonesia’s reliance on international financing and should lead to higher economic growth.”
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PA event: The Watchlist, September 7th | RSVP HERE
Hosted at the Soho Hotel.
This event will explore the latest trends and strategies on Portfolio Advisers’ radar. It will provide an opportunity to gain unique perspectives on up-and-coming funds.
Sponsors include Goldman Sachs Asset Management, J Sarfra Sarasin, Munich & Co, Oldfield Partners, Premier Miton, Trium Capital and SVM Asset Management.
