SG Hiscock & Company, a celebrated boutique equities house established by its principals in 2001, has issued a warning to investors to look closely at the management of companies to see whether they have the wherewithal to deal with “21st Century business risks”.
At a briefing in Sydney last week, Stephen Hiscock, the founding chairman and managing director, and Hamish Tadgell, the lead portfolio manager of the flagship concentrated SGH20 fund, described the current environment as involving “tectonic shifts” which favoured active over passive strategies.
“We are in the middle of a major change in the economic and technological environments which will have, and are indeed already having, a significant impact on financial markets and investors,” Tadgell said.
“Firstly, extreme monetary policy and impacts of excess liquidity continue to play out in most developed world economies. Secondly, we are in the middle of a technology and communications revolution that has fundamental social implications.”
The issues were driving seismic changes around the world. Excess liquidity had created a massive distortion in financial versus real economic asset prices, such as in wages growth.
“Following on from this the distortion is sharpening the sting of inequality. We believe we are in a new phase of what we call the ‘war on inequality’ which is characterised by the rise of popularism, regulation and redistribution,” Tadgell said.
“Thirdly we are experiencing the rise of China and a change in the world order. The global financial crisis has aided China’s emergence as an economic superpower and it is now entering the next phase of its industrial modernisation under its ‘Made in China 2025’ policy to upgrade the economy.
“In our view the current trade tensions reflect a broader structural and more permanent change, akin to the US-Sino relations in the 1970s and 80s when Japan emerged as an economic superpower.”
Investors should take a high-conviction active approach in companies which were well positioned in attractive markets and had engaged and focussed leadership. Stephen Hiscock said: “We are believers in the saying that a fish rots from the head down.”
Five big investment themes were: ‘technology everywhere’; changing consumption patterns; ageing populations; moves towards low-carbon economies; and urbanisation.
The SGH20 fund was launched in 2004 and has the rare distinction of being in the top 10 for the annual Mercer manager performance survey for the past 10 years.
“We don’t believe that it is possible to beat the benchmark by having a portfolio which is skewed towards it,” Hiscock said.