Newton Investment Management, part of BNY Mellon said it has built a thematic approach around two new investment themes identified as long-term trends, ‘abundance’ and ‘mind the gaps’.
‘Abundance’ relies on the belief that a range of factors are preventing business rationalisation, bringing new modes of competition and price transparency to wide parts of the economy, and ultimately contributing to an abundance of goods and services.
“Companies will be challenged to maintain pricing power and to adapt their cost bases to a world in which nominal revenue increases are harder to come by. The resulting pricing pressure is positive for consumers and other users of these goods and services, but the abundance of choice for many products is overwhelming. Successful companies are likely to be those whose pricing power and competitive positions are underpinned by a combination of brand strength, unique offerings, technological innovation, and adaptable low cost operations,” Newton IM explained.
As for ‘Mind the gaps’, it focuses on the enduring weakness of global growth, that creates greater differences between countries, industries and companies.
The theme is based on the belief that in a challenging global environment, structural differences are likely to be of greater significance in determining investment returns. Divergence in the fortunes, policy initiatives and, ultimately, performance of different economies and businesses will be amplified.
“The theme focuses on the causes and nature of these widening gaps, and underscores the requirement they bring for a discerning approach to global investment and capital allocation. It suggests a highly cautious approach to companies with poor governance, under-investment in technology or excessive borrowing,” Newton IM described.
Charles French, head of Investment at Newton, commented : “For over 30 years, we have been using global investment themes to inform our perspective on the investment landscape, helping us to identify key long-term forces of change and providing a framework for research and debate. These two new themes, alongside our existing themes, will help us to maintain an objective view on investment opportunities and threats against the backdrop of a challenging economic and financial market.”