If you follow the news you will know that the impeachment of US President D. Trump is underway. Whilst it was felt that this is uninteresting for investment markets, what is stranger is the opinion that Trump has actually been good for the US economy, employment and corporate profits. This is indisputable regardless of your opinion on his moral values. I can recall a conversation I had with a female taxi driver in Rome just before Christmas who was also telling me something similar. She said that no matter what you think of him, he has pretty much lived up to the promises he made to the US voting public. Love him or loath him, does this mean he could be in for another term? We will find out later this year.

Conversely, the financial markets are much more concerned about a US future led by Bernie Sanders or Elizabeth Warren. This would likely lead to periods of big instability in the financial markets and in our investment portfolios. It begs the eternal question about morals versus money!

Take no notice. They don’t matter. The fact that Trump can tweet about trade wars and the markets hardly take notice anymore just shows that the ongoing details of the trade spats between nations has little effect on our investments. Trade Wars will take 5-10 years to resolve and so have very little bearing on our investment objectives. However, this doesn’t mean to say that we shouldn’t be mindful of them, for example too much exposure to companies who are heavily invested into Chinese imports are potentially companies to avoid or have a minimal allocation to.

Most of you know my personal position on Brexit (I am a reluctant remainer, just to be clear!), but if you are an ardent remainer you may not wish to read on.

The financial marketeers feel that the general election result for Sig.Boris will bring a period of stability to the UK. Most of the asset managers said that they had been increasing their allocation to UK companies significantly since the vote. They are also expecting to see that he will have to follow through on a number of election pledges which could mean massive infrastructure investment and a lot more spending. This will create big opportunities for UK companies as they fall out of the EU.

US companies are also very positive about the UK’s prospects (quelle surprise!). To give you an example, the UK market is the third most important for Estee Lauder, the cosmetics firm, behind the USA, NO 1 and China NO 2. They are keen to invest and grow in the UK, despite Brexit.

And for all the talk of companies upping and offing to the EU, in reality companies such as Packard UK will maintain their base in the UK, but also open EU operations to ensure continuinity across their EU markets.

The big question for the EU is who is going to pay the bills moving forward? When the UK leaves the EU it will leave a massive funding gap and smaller less economically prosperous countries will have to fill the gap. How will this work and is it a sustainable model? Only time will tell.

WHATS THE BIG IDEA?

It may not surprise you to know that the big theme to this years conference was ESG investing. You may be wondering what that is? It stands for Environment / Social / Governance investing. We should also add healthcare into the mix. But, this is generally known as ethical investing, sustainable investing, environmentally friendly investing, green investing, or any number of other terms. But one thing is clear. This is BIG and it’s here to stay.

This is going to be a theme that is everywhere. There is not one person that I talk to who is not worried about the amount of plastic they use, or the slow pace of adoption into circular recycling and a society based on renewables rather than throwaways.

But it’s coming, and expect the pace to pick up. The general consensus of opinion was that any business or sector that fails to adopt, or adapt to the challenges we face in the coming years will very likely go out of business. Consumers are being selective about who they do business with and are making choices based on how company policy sits with their personal views. Equally investment managers have realised this trend are are also aligning their asset management styles with those of their customers, because they can see that prospective investors will avoid investments based on how they match with their ethical views. This in itself could be the biggest catalyst for change that we see. Asset managers are the worlds largest allocators of capital in the world: investment funds, pensions funds, sovereign investment funds etc and now they are starting to look at not just where they place money, but question why they do it. This could be the catalyst we see for real change.

Consumers and employees are the real capital of any business. Maximizing shareholder returns is now under the spotlight. People are making choices based on how businesses treat their customers and also their employees. Happy employees make for higher profits and more prosperous businesses. To give you an example, I rarely fly Ryanair anymore ( unless I am forced to do so). I struggle with their budget approach to customer service and lack of employee care.

Similarly there is a company in the US called Clorox. They make a range of household cleaning and consumer goods. They recently embarked on a cost cutting exercise and looked to reduce the administration budget by 10% with the introduction of new technology and artificial intelligence into their business. That would normally mean a cull of 10% of the admin workforce but rather than make them redundant Clorox chose to re-employ them into more innovative jobs and to use the human capital in a more productive way. In this way they are being seen as a company with a social conscious and become more investable.

Consumers and employees are the real capital of any business. Maximizing shareholder returns is now under the spotlight. People are making choices based on how businesses treat their customers and also their employees. Happy employees make for higher profits and more prosperous businesses. To give you an example, I rarely fly Ryanair anymore ( unless I am forced to do so). I struggle with their budget approach to customer service and lack of employee care.

Similarly there is a company in the US called Clorox. They make a range of household cleaning and consumer goods. They recently embarked on a cost cutting exercise and looked to reduce the administration budget by 10% with the introduction of new technology and artificial intelligence into their business. That would normally mean a cull of 10% of the admin workforce but rather than make them redundant Clorox chose to re-employ them into more innovative jobs and to use the human capital in a more productive way. In this way they are being seen as a company with a social conscious and become more investable.

I touched on the company Estee Lauder above, but they are also worth mentioning in terms of their record on plastic reduction and environmental impact. 18 months ago Estee Lauder had no view on plastic in their business or the environmental impact of their business on the world. Today they have a permanent board member responsible for monitoring and exploring every aspect of their ESG footprint ( Environmental / Social / Governance) and they have made the decision to move all their plastic products to glass containers.

We can also talk about Rentokil. Not a company with the best ‘green credentials given its use of chemicals and record on non-humane disposal of pest animals. But, Rentokil have understood the changing trends of consumers and the CEO has put in place a process to find 100% non toxic chemicals to eradicate pests. He also wants to find humane solutions for the treatment and disposal of pest animals and insects. However, this comes at a price and typically it costs 3 times more for these solutions…is the customer ready to pay this price yet? This is the kind of journey that a company like Rentokil has to monitor and adapt to.

The social aspect of investing has also become a prominent factor in a company’s’ investability. This may have less environmental credentials, but the investors are now looking at products where companies have taken time to consider the true purpose of a product and alter it accordingly.

To explain this we can use the example of the US households goods company Clorox again. They have a wholly owned subsidiary of the business which is a charcoal maker in the USA and has a market share of approximately 50% share of the entire US charcoal market.

A few years ago they asked themselves, What is the purpose of charcoal? One might say it is for cooking, heating, etc. But they found that its purpose is to facilitate social gatherings. The biggest users of charcoal in the USA are age 25 and under. Charcoal’s primary purpose is social gatherings for millenials. So, Clorox conducted research and found that most people have a beer when they BBQ and that it takes, on average, 13 mins to drink. They went away and adjusted their charcoal recipe so that it came to the optimum cooking temperature after 15 minutes. Sales have rocketed. They showed that they were thinking more about the reason for their product and adjusting it to their clients needs and tastes.

and then a short word of warning

The world is aging rapidly and countries around the world are going to have to adapt to older populations. The Italian healthservice, the NHS and many other governmental run health services are going to struggle to cope with the demands from an increasing number of patients in the next 10 years. Technological solutions will be required to meet these needs and these solutions are coming. Innovation is happening: robots and artificial intelligence are already taking the place of surgeons and are proving, in a lot of cases, better than human doctors at performing basic operations. Virtual reality is also a development which might mean a doctor can work in many places at the same time.

An example of a company spearheading development in this area would be the Smith and Nephew, leaders in global medical technology. They have developed wound dressings that can last for 3 or 4 days and notify the nurses when they need changing. This is time saving for nurses to concentrate their time on more important and potentially more urgent matters.

This is just one example, but one where rapid change is already taking place.