The emergence of China as a world power is a long-term theme for the trust. Slater says that he is still committed to the theme despite its recent unpopularity. He says: "The Chinese stock market is down 40% since its last peak in 2009 and there is considerable concern about the amount of credit expansion in the economy and lacklustre GDP growth. However, the process of transitioning the economy from capital intensive industries towards more knowledge-based consumption oriented sectors has only just started. The Chinese government is making strides to address the credit control issues, showing itself ready to restrict lending even if it is an unpopular measure.
"Certainly, growth may not be as rapid as it has been in the past, but the workforce is no longer expanding, so even with productivity growth, some slowing of GDP growth is to be expected. This is simply part of the move from being a low cost T-shirt manufacturer to exporting thermal power generation, for example." He points to holdings such as Tencent and Baidu as typical of the opportunities available.
The trust has shifted its position on the Chinese consumer. Historically, it has been invested in the luxury goods companies, but as the government moves to address some of the wealth disparity that has developed and to encourage consumption growth in the mass market, there has been a switch of emphasis. He says: "Inditex (the owner of the Zara chain) is now a larger holding than companies such as Gucci. China is the second largest market for Inditex. The fund also has a small holding in unlisted Amazon/Ebay equivalent Alibaba, which is due to list in New York shortly. There are a significant backlog of private enterprises looking to list, some of which are potentially quite interesting."
The second major theme in the portfolio is technology. Slater says the technology label can be misleading: "Google and Facebook are in essence advertising businesses. As people’s attention moves online, advertising dollars will follow. Amazon is really a retail distribution business, while LinkedIn is a recruitment business."
He believes the other important technology area in the trust is in cloud computing: "The corporate sector is likely to own and operate less of its own IT infrastructure in future. A number of companies are beneficiaries from this shift: Amazon, for example, has a growing franchise in providing outsourced IT infrastructure, alongside trust holdings Workday and Dropbox."
The trust also has a holding in Teslar, the electric car producer. Slater says there has been little progress on electrical cars from traditional manufacturers and in the meantime Teslar has brought a luxury vehicle to market, which is out-competing the established German brands in automotive magazine reviews. This has been reflected in a significant leap in the share price.
The other main themes for the trust are more about where it is not invested: Exposure to the industrials and commodities sectors has been falling. The trust has been shedding its position in Brazilian mining group Vale, plus a number of its Swedish engineering holdings. This is based on the view that China will experience far less commodity-driven infrastructure-intensive growth from here.
The positioning of the trust is also informed by scepticism about the reform of the Western Financial services sector. A lack of exposure to the financial sector dented performance at the start of 2013, but that has not prompted any change of heart. The trust has also been reducing its exposure to Brazilian index linked bonds. Although it is a position that has worked well over the long-term, more recently there hasn’t been the expected economic progress in Brazil.
Slater is currently lead manager on the trust, while James Anderson is on sabbatical for six months to write a book on growth investing. Anderson returns at the start of next year. The trust is currently first quartile over one and three years. Over three years, the trust’s NAV is up 41%, compared to a sector average for the global growth sector of 28.4%.
