The fund manager says: “The reality is that even if there is a recession, the consumers who buy the ultra-luxury goods are the people who are not personally in recession.”
This is a theme echoed by Gabrielle Boyle, global equity manager at Troy.
Her view is that those companies, because they produce a smaller volume of expensive goods, do not have a lot of capital tied up in stock or other costs that are hard to cut back if demand declines.
Boyle’s says the companies that will suffer most in the coming year are those with higher levels of debt, as refinancing costs will rise.
Matthew Page, who runs the Guinness Global Equity Income fund, says many of the global consumer goods companies have weathered the inflationary storm better than had been expected.
Those negative on the outlook for large consumer goods companies had taken the view that consumers would trade down – that is, buy cheaper versions of products – and this would hit profits.
But Page says the biggest companies have been able to put up the prices of their premium products and that has protected margins.
Zehrid Osmani, global equity manager at Martin Currie, by contrast says valuation is likely to be a key consideration for investors as he notes one of the features of the market in the coming year could be that the earnings forecasts for companies is downgraded.
As those forecasts are a major factor in the valuations at which companies share prices trade, he feels the companies that are presently trading at the cheapest valuations will have greater capacity to do well if earnings are downgraded, because to a large extent they are already trading at levels which reflect the bad news.
On the sustainable investment side of the ledger, David Harrison, who runs a sustainable global equity fund at Rathbones, says: “It has been a very tough year for sustainable equity investors. This is because, for the most part, the companies will generate more of their revenues in future than they do now because we are the start of a transition.”
Higher interest rates today mean investors can get a return from cash or government bonds immediately, and this reduces the appeal of owning assets for which one has to wait numerous years for a return.
He says the key way to approach a sustainable investment opportunity in that context is to focus on companies that “are not just about investing in the next big thing, and instead focus on investing in companies that have already got proven business models and cash flows.”
