Adrian Daniel and his team follow an investment approach that focuses on long-term, structural trends such as digitalisation and automation. Besides offering high growth potential, such structural trends carry more weight than macroeconomic cycles. The more technology advances, the greater its influence will be on the standard macroeconomic data that is used by the capital markets to shape their investment strategies. By carrying out detailed analyses, the team is able to tap into new trends early and generate particularly attractive returns.
Digitalisation has led to profound changes in many areas of business. Amazon has built a huge e-commerce empire and entirely changed the future of the retail industry in the process. Google and Facebook’s social and news networks have transformed the way we share information. This has also led to major changes on the capital markets, where many digital companies (such as Apple or Alphabet) now have the highest market capitalisations.
Automation is also continuously advancing innovative disruptions. This is affecting the wage-price structure; while low-skilled workers are earning less, skilled workers’ wages are going up. At the same time, companies are generating higher revenues thanks to increased automation. As higher productivity combined with lower costs can lead to higher earnings or provide an opportunity to expand into new business areas. Innovative business segments offer strong long-term growth. The fund’s investments in companies driving structural trends have significantly contributed to its performance in the equity component over the past few years.
But it is also worth taking a long-term approach to bonds by analysing issuer business models in terms of structural changes and disruptive technologies. For example, Toys R Us was still a leader on the credit market at the turn of the millennium, but was recently forced to declare bankruptcy due to competition from online retail. These are the kinds of risks that should be identified before they materialise. In addition to this far-sighted approach, general trends on the interest rate markets such as low core inflation are also taken into account, despite indications that the ECB’s bond-buying programme is to end in the near future. While duration in the fund was extended to 4.8 years at the start of 2018 due to attractive return opportunities, it has now been brought below 4 years again. In total, the portfolio comprises around 30% corporate bonds and 20% government bonds in order to optimise the risk/return profile of the bond component.
This combination of a flexible approach with a focus on long-term structural trends offers an attractive opportunity for investors in Europe. This is because in addition to demographic changes, digitalisation and automation are key reasons for the low core inflation in the eurozone. In light of the low interest rate environment, MainFirst Absolute Return Multi Asset, which invests worldwide, therefore offers an attractive source of income for risk-conscious investors.