Schroders’ Virginie Maisonneuve sees sustainable growth as most important factor in stockpicking
Virginie Maisonneuve, head of Global and International Equities at Schroders, says the growth challenge facing the global economy at the macro level means she needs to focus on sustainability of growth at the company level.
Is the global economy close to reaching a tipping point? The impacts of the key themes in our portfolios -demographics, climate change and the emerging market supercycle – are combining with the ramifications of the global financial crisis to create an environment where growth is reaching a point of “saturation”. In this world, focussing on the sustainability of growth becomes more important than ever. This is important for investors as the global economy painfully adjusts to new realities and follows a rocky path to normalisation.
The concept of growth saturation does not necessarily equate to zero economic growth, but rather implies that economic growth will be constrained at a lower level. Society, industries and investors must adapt to survive potential shifts from abundance to “scarcity economics” in some areas. In this environment, picking companies with sustainable growth is more crucial than ever, and understanding how sources of such growth might shift is key to building successful equity portfolios.
For the five years since the financial crisis, the developed world has been dependent on waves of liquidity (quantitative easing), becoming beholden to governments and central banks to cushion the destructive adjustment process underway. In this transitional environment, with greater state involvement and tighter regulation, there has been much discussion about the need to develop a sustainable model for economic growth, less dependent on leverage. With this in mind, for an austerity plan to be more effective, it should be accompanied by badly-needed structural reforms to improve competitiveness and mitigate the impact of population ageing as well as environmental challenges. Alongside this, the crisis presents an opportunity to increase awareness of a broader concept of sustainability. It gives the chance to reshape the global economy to sustain growth in a saturated world.
Stock-picking in a saturated world
The combination of environmental pressures and the global economic rebalancing precipitated by the financial crisis creates an evolving investment framework that both investors and companies must focus on in order to stay ahead of the curve. Below are a few areas of particular importance for picking stocks in a saturated world.
1. Regulation and Policy
First, over time, it is likely that pressure will build for governments to adopt regulations and policies more suited to a scarcity framework. For example, policy could incentivise “good” behaviour or penalise – possibly via punitive taxes – companies that inefficiently or excessively consume environmental resources, or contribute far more than their peers to carbon emissions. This changing operating framework creates a competitive dimension for companies in resource-intensive industries, such that those with best-in-class resource usage and ESG practices will win. Even if governments are slow to establish appropriate frameworks, market forces will continue to drive resource prices higher, which will also alter the relative competitive landscape. Within this framework, investors should investigate the ability of company management teams to lead in changing political, economic and environmental circumstances. Proven ability for innovation and acuity will be rewarded, as these management teams will have the best chances of adapting to either gradual or sudden change.