March was dominated by the war in Ukraine. Continued inflation and interruption to global supply chains resulted in changes to the global economy. There is increased focus on energy complexity and security whilst household disposable incomes are reduced which poses challenges for companies.
However, with challenges come opportunities. In this short video update, Jeremy Richardson shares his view on how investors can respond to change.
Watch time: 4 minutes 25 seconds
View transcript
Hello. This is Jeremy Richardson from the RBC Global Equity Team here with another update.
And it’s been a month that’s been dominated by the war in Ukraine and following closely on from the global pandemic.
Now the thing with the global pandemic was although it caused a lot of upheaval, we have models that we could apply to it—MERS, SARS, even Spanish flu in 1918. Yet, it was with a little bit of ingenuity from the scientists and the way in which viruses have a habit of mutating in favour of less aggressive forms, we could think that there would be a—there was an episode; it would be a period which would give way to more optimistic times. And I guess, at the beginning of the calendar year, we were standing on the threshold of those more optimistic times.
That seems like a long time ago. Now, obviously, we’ve got war in Europe again. And like the pandemic, this particular issue investors are now having to face, we don’t have models that we can apply to that. It doesn’t necessarily give us the confidence to be able to predict what these longer-term outcomes are going to be.
What we can say is that wars tend to be inflationary and that they are interrupting the supply chains within global economy. And that’s something that we’re seeing today from companies at the moment.
It’s also imposing changes upon the global economy. And as investors, we mustn’t be afraid of change; change actually represents a significant opportunity. We try and harness the power of change by identifying great businesses that are changing for the better. And there’s a lot of change within companies. We see that all the time.
Industries also change, but are much slower to change. But the systems upon which everything sort of is the foundation for everything, they rarely change. But as Lenin said, there are decades when nothing happens and there are weeks when decades happen. And it feels as though March has been a period of four weeks where a lot has been happening and there’s been a lot of change.
We see it most profoundly, I would say, within the energy complex, the change that the systems are now sort of feeding through to industries. Energy a really good example. We’re hearing things like, for example, energy security is an issue for the first time now, I guess, since 1989 when the Berlin Wall fell. We’re seeing the rising costs of energy begin to impact things like food prices, logistics, and freight. And we’re also seeing supply chains being disrupted as a result of the interruptions caused by the war.
And that’s leading us as investors to be able to—we need to respond to that change. And I would say, the things that we’ve been thinking about most over the course of the last four weeks have really sort of fallen into those two buckets.
So, firstly, the impact upon household disposable incomes as a result of rising costs of energy and food. For many households, this is going to make us take a significant bite out of their discretionary spending. And that will naturally impact how certain industries grow and how companies—the opportunities that companies are facing. So that sort of feeds through from systems through industries down into individual companies.
And the second thing we’ve been thinking about is around complexity of supply chains. We’d already been hearing at the end of the pandemic how companies have been trying to beef up their inventories in order to be able to ensure that they could service their customers. That seems to us even more important now in a world of perhaps even more disjointed supply chains.
So we’ve been looking at those two things, and as a result of that, have been making some changes within portfolios. Now as I say, we shouldn’t be afraid of change; change always creates opportunities. And we continue to remain of the opinion that the best way that investors can actually harness that change to the benefit is through a focused portfolio of great businesses, which tend to be managed by management teams who think like owners, who bring that degree of resiliency, and who’ll be able to position those companies appropriately for whatever the future holds.
I hope that’s been of interest and I look forward to catching up with you again soon.
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