In December 2021, we held the Edelman Investor Summit which convened some of the top investors from some of the world’s preeminent fund management houses within our client base. It was a day of fascinating insights into the themes which will shape markets and company valuations during 2022. All of the panels can be watched again in full here – but below are 10 key take-outs from the discussions that took place.
- Inflation – and how central banks respond - is the big macro theme for next year. The consensus is that many of the drivers of the current very high level of inflation are transient. Nevertheless, companies’ inflation resilience will be a key factor for stockpickers in 2022 and beyond – so companies who control and diversify their supply chains and those who are able to flex their prices upwards will be sought out by investors.
- We will see a prolonged environment of negative real interest rates – potentially for decades, according to Nigel Bolton, co-CIO of the Fundamental Equity Group at BlackRock – which is supportive of growth and supportive of risk assets.
- Capex is a key metric for investors to assess companies’ ESG credentials. Investors want additional disclosure on how companies are deploying capital as businesses work towards Net Zero targets and shift their business to operate in a more environmentally-conscious world. “Green capex” plans will become an increasingly important factor in investor decision making.
- Investor focus is shifting from Net Zero pledges to Net Zero strategies. Investors will increasingly demand to see detailed plans, with shorter time milestones and targets (as opposed to 2050), which demonstrate that company ambitions are achievable.
- Major institutions agree that it is now “obvious that culture and purpose as part of a strategy are becoming more tangible and observable by investors”. In other words, culture and purpose are becoming more material aspects to a company’s valuation.
- Bondholders view themselves as playing an increasingly active role in corporate governance, alongside shareholders. Fixed income investors are likely to become more vocal with management teams, particularly at the time of refinancings when they have more influence over management behaviour. In the words of Adrian Grey, Global CIO of Insight Investment (one of the world’s largest bond investors), if debt can’t be rolled over and a company can’t be refinanced, “game over”.
- There are several reasons to be positive on the investment case for banks – namely, “rates, regulation and returns”, according to Alan Custis, Head of UK Equities at Lazard Asset Management. With inflation hitting 10-year highs, we’re entering a rate rising environment and banks with big incumbent current accounts will benefit. Post financial crisis regulation (and Government support) mean that banks are now extremely well capitalised and stable. This excess capital is translating into enhanced returns in terms of funds being returned to shareholders via share buy-backs and dividend policies.
- Management of supply chains will be a major differentiator in 2022 for healthcare companies. Demand for Covid vaccines has dominated the supply chain for virtually every other drug and, as a result, there are significant – and prolonged - constraint issues in drug supply. For Luke Barrs, EMEA Head of Fundamental Equity Client Portfolio Management at Goldman Sachs Asset Management, “there is quite a bullish outlook on those companies which are well placed to deliver on that supply”.
- The FAANGS are going nowhere. Investors could not see any threats in the market which would derail tech’s biggest names in the foreseeable future. The tech giants are addressing anti trust concerns and have so much cash on their balance sheets that they have unparalleled ability to invest and adapt. Indeed, big tech are likely to be the gatekeepers of the next wave of tech innovation as they are able to invest major sums for years in unprofitable ventures in anticipation of dominating the market in the long term. For example, Facebook has been spending $10 billion a year on its Metaverse project with, as yet, no output – but the panel agreed that the Metaverse is likely to be the next transformational technology to hit the market and Facebook will be at the forefront.
- An orderly energy transition will require natural gas as a transitional fuel and countries such as Germany and Belgium are increasing their natural gas capacity significantly. However, Europe is around 40% reliant on Russian natural gas which was described by the panel as “very much at odds with the investment world”. In the words of Tom O’Hara, portfolio manager at Janus Henderson, “in order to have an orderly energy transition that doesn’t leave the consumer in the lurch, we will need well capitalised, responsible, Western, listed, oil majors”.