Strong positive returns in November resulted in outperformance of the benchmark. Indeed, this was the outcome across all 9 measurement periods for the Global Quality equity Fund and 7 of the 9 (bar just two only slightly under benchmark after cost of the Puts) for the Global Capital Aware Fund.
This pays testament to the long successful history of our process. Whilst there continues to be intense debate around whether inflation is transitory or structural, perhaps a policy mistake by central bankers is imminent, or how the virus will unfold over the next year; Insync’s focus on structural growth trends obviates the need to get these ‘calls’ right. Our focus is on delivering strong consistent returns for our investors, with less risk, over the investment cycle. We do this by investing in businesses that are highly profitable and cash generative, with strong balance sheets. This means they are less reliant on external funding to fund their future growth, and extremely well positioned to be a major beneficiary of Megatrends. This drives the numbers below.
3 big Megatrends boosting returns
Many of the companies in the portfolio delivered strong quarterly earnings numbers and particularly in these 3 Megatrends. Over time, the increase in the share price of a company follows its earnings growth. Exuberant sentiment may propel it further temporarily but eventually it is this facet that determines its price. Investing in highly profitable companies benefitting from Megatrends provides this strong earnings growth. Not only higher than global GDP over a full economic cycle but also often surprising most investors in terms of both magnitude and duration.
Here are three notable Megatrends providing strong contribution for the month. Negative contributors were the silver economy and contactless payments.
Household Formation Megatrend – Some 12.3 million American households were formed from January 2012 to June 2021, but just 7 million new single-family homes were built. The supply of U.S. homes for sale is near a record low, and the gap between supply and demand is widening. This is occurring at a time where the millennial generation is reaching peak 1st home purchase age in next 2-5 years. Also, the 46 year old age cohort will accelerate over next 15 years and they are typically 2nd home buyers. This provides multi-year tailwinds for beneficiaries of the household formation Megatrend
Enterprise Digitisation Megatrend – Digital transformation that was projected to happen over the next 10 years is happening now. Companies have accelerated their spend on enterprise digitisation. This is in response to the rapid adoption of the hybrid work model, as a result of the pandemic, and the rapid advances in technology. Microsoft’s CEO, Satya Nadella, is expecting Tech spend as a percentage of total GDP (gross domestic product) to double from five to 10 percent over the next 8 years
Internet of Things Megatrend – A key enabler for this is 5G. The global 5G services market is expected to grow at a compound annual growth rate (CAGR) of 23%, to reach $188 billion in 2025. Rising demand from the Internet of Things (IoT) is anticipated to contribute to higher demand for 5G services in order to deliver high performance and efficiency.
Compounding returns through investing in multiple Megatrends
Insync currently invests in 28 highly profitable companies across 16 Megatrends. The benefits of investing in a diversified portfolio of technology and non-technology Megatrends are that it clearly delivers consistently strong returns with lower risk complementing other investment styles in a portfolio.