Making the right calls on short-term macro-economic themes and their impact on asset prices is notoriously difficult.
For those investing in UK equities, such calls have been made all the more difficult because of unpredictability around Brexit, a fragile government and the first moves to begin to normalise monetary policy.
However, identifying secular growth trends – established long-term structural growth themes fundamentally uncorrelated to the economic cycle – allows investors to take an alternative approach, one that is less reliant on the uncertain business of macroeconomic forecasting.
Market-leading UK companies operating in areas benefiting from secular growth trends should be well-positioned to grow regardless of the wider economic backdrop. This provides an attractive opportunity for the investor.
Technology is perhaps the most obvious structural growth area and indeed qualifies as a super trend, covering a whole series of sub-themes. One of these is the willingness of companies to invest heavily in IT to achieve a competitive edge.
Worldwide spending on IT is predicted to reach £2.8 trillion in 2018, up 4.3% from the estimated £2.7 trillion this year, according to research firm Gartner.
RELX Group is one UK business positioned to benefit. The company, formerly Reed Elsevier, provides huge quantities of professional information for scientists, doctors and lawyers and has moved from printed journals to highly searchable online databases. For example, lawyers can use its LexisNexis platform to search for case law in a variety of jurisdictions.
The company’s vast archives provide a competitive edge and act as a barrier to new entrants to the market.
Rise of the EM middle class
Asia already has more than 525 million people who can be termed middle class, more than the entire population of the European Union. And, according to Ernst & Young, over the next two decades the world’s middle-class will be swelled by another three billion people, coming almost entirely from emerging economies.
One company poised to reap the benefits is financial giant Prudential, which has a very strong presence in Asia. It sells products like pensions and health insurance, which are in demand from middle class savers in nations where state provision may not meet their needs. The company has excellent distribution and a well-established franchise across a broad spread of Asian countries.
Robots already build everything from cars and computer chips to iPhone cases, and by 2021 sales of industrial robots will be growing at an average of 16% annually, according to ABI Research, which predicts a tripling of annual sales to £34 billion by 2025.
Renishaw is a high-specification engineering business which provides very accurate measurement and calibration tools vital in helping companies using industrial robots to avoid costly breaks in production. Given what is at stake, Renishaw’s track record in the field is greatly valued by its customers – and this deters new competition. The company also invests heavily to stay at the forefront of research and development.
Increased healthcare spend
Ageing populations, expensive new treatments and greater patient expectations are driving higher global spending on healthcare, which is projected to grow to £6.6 trillion by 2020, an increase of £1.3 trillion since 2015, according to Deloitte.
London-listed NMC Health is the largest provider of private healthcare services in the United Arab Emirates and is benefiting from a government push for companies to provide healthcare insurance for their staff. This is a highly profitable, fast-growing company that has been successfully acquiring smaller private hospital operators.
Finally, it is worth noting that these four trends are largely global in nature, which makes UK companies benefiting from them even more attractive, given the particular challenges faced by the domestic economy.
Richard Hallett, Manager of the Marlborough UK Multi-Cap Growth Fund.
Regulatory Information and Risk Warning
The past is not necessarily a guide to future performance. The value of investments and the income from them may fall as well as rise and you may not get back the amount you originally invested. The Fund invests in smaller companies which carry a higher degree of risk than larger companies. The Fund invests mainly in the UK. Therefore it may be more vulnerable to market sentiment in that country. You are required to read the Key Investor Information Document (KIID) before making an investment. The KIID and prospectus for all funds are available free of charge at www.marldemo.xyz or by calling 0808 145 2500. This document is provided for information purposes only and should not be interpreted as investment advice. This material is a communication to professional advisers only and should not be disclosed by such advisers to their customers or other non-professional individuals without first contacting Marlborough for permission to communicate this material. The information contained herein has been prepared from sources believed reliable but is not guaranteed and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or need of individual investors. Please note that for your protection telephone calls may be recorded. This document may contain FTSE data. Source: FTSE International Limited (“FTSE”) FTSE 2017. “FTSE” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. All information unless otherwise stated is as at 24/11/17.