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Fundamental equity investing is the art of dealing in uncertainty. It involves forming a view on the earnings trajectory of a company, analysing its prospects for growth, understanding the strength of its competitive moats, and assessing potential risks to the sustainability of its returns – whether self-inflicted or external. It is an art rather than a precise science; only some of these risks can be quantified with others firmly in the Knightian uncertainty camp.
In mature and well penetrated industries like consumer staples, achieving growth and maintaining pricing power requires a steady pipeline of innovations that address consumer needs, supported by sustained marketing investment and best-in-class execution. In this piece we look at the consumer staples companies we hold that demonstrate sustained innovation.
With tariffs potentially a headwind for growth and earnings, the International Equity Team explain why being in the “not owning” bucket may continue to be a positive.
The increasing number of tariff-related executive orders marks a distinct shift in policy. At this time, we believe most of the companies in our quality portfolios should face limited direct impact from tariffs, given their skew towards services, while local manufacturing, high gross margins and pricing power may dampen the impact for the portfolios’ goods producers. In the event of any economic slowdown, we would expect our quality portfolios’ earnings to prove more resilient than the market’s.
In today’s fast-evolving economy, technology transcends sector classifications. It’s re-shaping growth trajectories and redefining operational excellence as digital integration, AI and cloud computing have become essential engines of competitive advantage.
While the US economy continues to look healthier than other developed markets, we think positive surprises may be tougher to find than in the last two years. Elevated equity multiples, modest VIX and BBB-rated bond spreads at their lowest levels this century suggest the market doesn’t share those doubts. As investors, we prefer steady compounding through decent top-line growth and resilient earnings at a reasonable multiple.
Markets have become increasingly charged, unpredictable and narrow, evidenced by the risk-on rally in response to Donald Trump’s presidential victory and the dominance of US tech giants, aka the "Magnificent Seven". For a distorted index which appears to be priced for perfection, any knock or fade to earnings expectations may spell trouble —presenting risks for index huggers but opportunities for our bottom-up, benchmark-agnostic approach focused on the compounding of high quality company fundamentals.
After unwinding COVID distortions, the health care sector has significantly underperformed the broader market. Yet it ranks high on our two favoured quality metrics, ROOCE and gross margins, with the second highest EPS growth of any sector in the MSCI World Index over the past 20 years. Its strong long-term outlook is reinforced by a rapidly ageing global population, untapped global market opportunities, the nondiscretionary nature of its demand, and broad technological innovation potential.
