SUMMER 2018 Changing times INVESTING FOR A NEW WORLD ORDER? alliancetrustsavings.co.uk Welcome to the latest edition of Taking Stock. Changing times If this edition had a theme tune it might be something like Bob Dylan’s 1960s classic The Times They Are A-Changin’. Or at least that’s how it feels to many of us. US protectionism, Trump-style diplomacy, North Korea, Iran, Syria, Russia, China, Brexit, Facebook, Cambridge Analytica. These have all been headline makers for 2018 so far, and some have undoubtedly been implicated in increased market volatility. Around the world the political and economic power of nation states has always ebbed and flowed. Alliances are made and undone. And the fortunes of individual corporations rise and fall. But the question for investors today is, are we just looking at a variation on a theme of business as usual for the world’s established economic power base? Or is something else going on? Are we on the cusp of some more fundamental change in the world economic order? Keeping ahead of the curve Views on this matter because searching for growth necessarily involves looking ahead and understanding where the longer-term opportunities and threats are likely to be. In this edition of Taking Stock our expert contributors explore the potential implications of the developing picture. From how it’s influencing investment decisions today, to steps any investor can take to make the most of their money in uncertain times. As always, I hope you will find it an informative read. If you have any feedback or suggestions for future editions, please get in touch. Sara Wilson Head of Platform Proposition Alliance Trust Savings Make sure you’re getting the most from us This information does not Part of our service is keeping you up-to-date with constitute investment advice or investment news, views and opportunities that may help a personal recommendation for you make the most of your money over the longer term. any particular investment and As well as Taking Stock, that includes our popular News should not be used as the basis for You monthly eNewsletter, Your Retirement magazine, of any investment decision. If you new IPOs and Share Offers, information about the top are unsure you should consult a selling investments on our platform each month, as well Financial Adviser before investing. as articles from select investment partners. 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Past performance is not you’d like to receive. a guide to future performance. 8 20 10 14 4 24 Contents 04 Looking beyond the noise 16 Quality control: a re-evaluation of risk Sam Morse, Portfolio Manager for Fidelity European Values As monetary policy becomes less benign to markets, Bruce PLC, explains why he continues to look beyond the economic Stout, Senior Investment Manager at Murray Income Trust PLC and political noise, concentrating instead on the real-life explains why it is so important for investors to ensure that progress of listed businesses in Europe, and their capacity companies are genuinely delivering high and sustainable for consistent dividend growth. earnings rather than trading on past success. 06 Why aren’t we Facebook friends? 18 Appetite for disruption The so-called FANG companies (Facebook, Amazon, Netflix With much of the developed world looking forward to longer and Google) have been favoured by many investors in recent life expectancy, Tony DeSpirito, Portfolio Manager for the years. But Alasdair McKinnon of The Scottish Investment Trust BlackRock North American Income Trust plc explains why he takes the contrarian view. He reviews why these tech believes that companies embracing disruptive technologies behemoths may now be under threat. could be a valuable source of future income. 08 In search of safety? 20 Growth from different perspectives Earlier this year many investors flocked to ‘safety’ as the When assessing the growth potential of a company in a prospect of a US vs China trade war and tensions over Syria globalised world, the managers of Monks Investment Trust triggered a wave of unrest. Alliance Trust Savings’ Sara Wilson believe it is ridiculous to focus on headquarter location, or takes a closer look and reviews some of the routes traditionally to assume it shares similar characteristics with others in the used for managing downside risk. same sector. James Budden of Baillie Gifford elaborates. 10 Finding opportunities in the chapters of Brexit 22 The search for future winners ahead of the crowd Mark Barnett, Head of UK Equities at Invesco Perpetual, is not Lucy Macdonald, Portfolio Manager for The Brunner Investment discouraged by the Brexit gloom and doom narrative apparently Trust PLC considers the longevity of Investment Trusts, how undermining confidence in the UK economy. He highlights three successfully many have navigated the market conditions history sub-plots that he believes, by driving and distorting UK markets, has presented them and the potential benefits to investors of are creating opportunities for investors. a robust, bottom-up approach to stock selection. 14 Still finding winners in the UK 24 Tips for uncertain times Simon Gergel, Portfolio Manager at The Merchants Trust PLC No one can ever be quite sure what political and economic explains why he sees the corporate appetite for UK PLC developments will mean for markets. But there are some undiminished by Brexit and other political shocks, backing basic tips that can help you make the most of your money the Trust’s own view that the UK stock market is, in fact, one whatever the future may bring. Alliance Trust Savings’ of the cheapest in the developed world right now. James McCafferty explains. Taking Stock alliancetrustsavings.co.uk | 3 The approach I take to managing Fidelity European Values PLC is to look beyond the economic and political noise and concentrate on the real-life progress of listed businesses across this large and diverse region. In running the Trust I focus on researching and investing in stocks I believe can grow LOOKING their dividends consistently, irrespective of the prevailing economic backdrop. History BEYOND shows that these companies tend to outperform the market over the longer-term. THE NOISE: ompanies with the cushion of a healthy and growing dividend tend to be resilient FIDELITY Cduring periods of macroeconomic uncertainty. By investing in solid and sustainable dividend-paying stocks, I believe Fidelity European Values PLC provides core defensive exposure to EUROPEAN European equities. Since the launch of Fidelity European Values over 27 years ago, Europe has witnessed its fair share of political and economic upheaval. It’s important to note though, that however significant VALUES PLC changes might be on the political stage, the corporate sector tends to carry on regardless. By Sam Morse, April 2018 4 | Taking Stock alliancetrustsavings.co.uk “...I focus on researching rather than just capital growth. This change was to Sam Morse acknowledge my focus on dividend income as well and investing in stocks Portfolio Manager as capital growth and did not relate to any change Fidelity European Values PLC I believe can grow their in investment approach. A reallocation of fees and and Fidelity European Fund expenses from revenue to capital will also positively dividends consistently, affect the level of future dividend pay-outs. A lower Sam joined Fidelity in 1990 and 0.75% management fee on assets over £400m spent seven years with the company irrespective of the prevailing has taken effect from April 2018 and represents as a research analyst, covering pan- economic backdrop.” a valuable saving for shareholders. European retail stocks, and then as a portfolio manager, running funds including the Fidelity Income Plus What will unfold in 2018? I am naturally cautious and I am not inclined Fund, the Fidelity Growth and Income Fund and the Fidelity to take large bets against the market in individual European equities have underperformed recently MoneyBuilder Growth Fund. He then sectors or countries, preferring instead to focus as stock markets have been impacted by weak left Fidelity to be Head of UK Equities on companies which I believe will be able to economic data and concerns over the pace of at M&G. Sam returned to Fidelity in outperform their competition over the longer-term. interest rate increases in the US. The valuation 2004 to manage UK equities for My process is therefore built from the bottom up, of the European stock market remains high and institutional clients. He managed the looking at individual businesses, but keeping an eye I believe that this and expectations for continued Fidelity MoneyBuilder Growth Fund on the wider market to avoid unexpected pitfalls. earnings expansion leaves the market vulnerable from December 2006 for three years before becoming portfolio manager to earnings disappointments and geo-political for the Fidelity European Fund, Identifying future dividend growers shocks. Markets have been aided by liquidity which he continues to run today. injections from global central banks and may On this basis I look to build a portfolio of 50-60 He assumed responsibility of Fidelity be impacted by liquidity withdrawal as 2018 European Values PLC in January attractively valued companies, with strong balance unfolds, particularly if this happens more quickly 2011.Sam has an MBA from sheets and a track record in cash generation, than expected. In such circumstances my hope is INSEAD and a BA from the which have the potential to grow dividends that my concentration on fundamentally strong University of North Carolina.