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<\/p>\nThe speed and strength of the post-Covid recovery has far outpaced expectations. However, the CIO at Marriott Investment Managers, Duggan Matthews (pictured), believes that investors should consider the possibility that this may be true of the entire cycle.<\/p>\n
<\/p>\n
\u2018We think we\u2019re rapidly shifting through the gears of this cycle,\u2019 Matthews told Citywire South Africa in an interview. \u2018It seems to be squeezed from our perspective.\u2019<\/p>\n
The first reason for this is that the economic impact of Covid was incredibly far-reaching. According to World Bank research, 90% of countries experienced negative per capita GDP growth during the crisis.<\/p>\n
No event in the past 120 years has been that pervasive. During the global financial crisis, by way of comparison, 60% of countries went backwards.<\/p>\n
The second reason is the massive amounts of stimulus introduced into the global economy. This has had an immediate impact, but that may erode quite quickly.<\/p>\n
\u2018I think everyone was hoping for a longer cyclical recovery \u2013 that we could keep that high level of growth going for a protracted period of time with stimulus and low interest rates,\u2019 Matthews said. \u2018But I think the price of all that stimulus up front is what we are seeing in inflation and debt. And those are counter-balancing forces that have understandably emerged. Nothing comes for free.\u2019<\/p>\n
In his view, this means that what has worked for investors in 2020 and 2021 may very well not work in 2022.<\/p>\n
\u2018We\u2019ve had a very strong cyclical recovery and risk-on type mindset,\u2019 Matthews said. \u2018You have seen that in the prices of things like bitcoin and long-duration equities. But that\u2019s changing, and we think that resilient, quality businesses, in relatively defensive industries like consumer staples and healthcare, will have a big role to play.\u2019<\/p>\n
With global growth slowing, these companies, with reliable and growing dividend streams, should once again prove their worth, he said.<\/p>\n
\u2018The rebound has been strong, but we think we\u2019re going to start slowing down reasonably quickly now. What\u2019s happening in Ukraine adds to that narrative \u2013 hurting confidence and being negative for growth longer term.<\/p>\n
\u2018This is a phase where good, established\u00a0 companies that aren\u2019t reliant on favourable conditions to increase\u00a0 profitability are going to play an important role in portfolios.\u2019<\/p>\n
To some extent, this mirrors the environment before Covid-19, where there were persistent concerns about growth.<\/p>\n
\u2018If you agree with the sentiment that things are going to get quite a lot tougher quite quickly, it makes sense to go to companies with secular growth trends behind them. There is no longer a rising tide lifting all boats. It\u2019s going to be themes and quality. That was very much a feature pre-Covid that will come through again.\u2019<\/p>\n
Traditionally, these have been companies like Nestl\u00e9, Johnson & Johnson and Diageo. However, Marriott is also looking at selected tech companies with specific profiles.<\/p>\n
\u2018We consider Microsoft a great dividend payer \u2013 it provides almost the toothpaste for business,\u2019 Matthews said. \u2018Over time, we have broadened the definition of what is essential, predictable and reliable. We like timeless business models that will continue to be relevant and produce reliable profitability and dividend growth.<\/p>\n
\u2018Equinix would be another. It\u2019s the largest data centre provider in the world, providing infrastructure for the cloud. We think that\u2019s a very predictable way of benefitting from the explosion in data and data usage. It\u2019s a business in the tech space, but with one of the most stable earnings growth profiles on the S&P 500.\u2019<\/p>\n
These are the sorts of stocks that Matthews believes will stand up best in a high inflation, low growth environment.<\/p>\n
\u2018Dividend investing, for us, is about the certainty of outcome through changing financial conditions, which are very difficult to predict,\u2019 he said. \u2018We want to invest in businesses that can produce consistently through the cycle. We want to know that whatever happens economically, geopolitically, or with interest rates, we can still see those businesses growing earnings and producing\u00a0 solid long-term outcomes.\u2019<\/p>\n
Over the past two years, the\u00a0Marriott First World Equity feeder fund\u00a0has delivered an annualised return of 10.5%. That is below the average for funds in the global equity category of 13.2%.<\/p>\n
However, in the difficult environment of 2018, the fund was up 5.8%, when the peer average was just 1.5%. That placed it comfortably top quartile for the year.<\/p>\n","protected":false},"excerpt":{"rendered":"
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