Premier Miton Macro Thematic Multi Asset Team
Our process combines macro views against long term thematic exposures. Our major macro view, as we have discussed extensively over recent weeks, is the reflationary environment. This week we give our take on what we believe to be the most attractive long term thematic exposures for the coming years.
We think the future is one where the era of US dominance and globalisation will be coming to an end, allowing for a more multi-polar world to emerge. This has been becoming clear for some years now, with China asserting greater influence on global affairs and it is brought to the fore by the current Ukraine conflict. While deglobalisation clearly supports our macro reflationary view, it also impacts some of our long-term themes in a positive manner.
Three, in particular are set to benefit. Firstly, nations will need to be less reliant on outsourcing for manufactured goods. This will clearly benefit the robotics theme as manufacturing is brought closer to end markets in order to become less reliant on outsourcing. While potentially more expensive in the near-term, domestic manufacturing has many advantages going forward, over and above the reliability issue. Firstly, companies are better able to control their intellectual property. Secondly, they can be much more flexible in the production phase, with much faster turnarounds. Finally, they become much less reliant on lengthy shipping routes, which have environmental issues going forward.
In addition to the obvious robotics and industrial automation areas, we believe that semiconductors could be a major beneficiary of this trend. However, the vast majority of semiconductors are produced in Asia, with the West having limited production. There is an emerging trend for companies to build semiconductor supply in developed markets.
Reliance on Russian energy has provided a further incentive to build domestic energy resources, both in fossil fuels and in renewables. Clearly, there are arguments that favour (and oppose), both. Either way, domestic energy investment is going to become more and more important going forward. We expect to continue to have exposure to both, but the renewables theme, having been out of favour for a year or so, will likely come back into focus.
A final timely theme is our agriculture theme which had been out of favour for many years until recently. The combination of rising oil prices, leading to rising food prices has led to interest in the whole agricultural field. The prospect of fertiliser shortages, given the importance of Russia and Ukraine in the global fertiliser market, is leading to the prospect of food shortages. The sanctioning of Russia will potentially lead to Russia restricting grain exports to the West, thus exacerbating the situation. All this leads to the need for greater food independence. We think that companies in agricultural supply look attractive going forward.
These three themes look to be particularly timely in the current environment, alongside our principle macro position of the reflationary environment. Alongside this we still have a sizeable exposure to other long term themes, such as the digital economy and ageing population themes, to give diversity in portfolio construction.