Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and I'm joined today by Raj Shant, Manager of the Newton Global Opportunities Fund, to give his three investment picks.
Hi Raj.
Raj Shant: Hi Emma.
Wall: So what's your first pick today?
Shant: Well, at Newton we like to start the process with long term investment themes and one of our themes, or couple of our themes, are net effects and smart revolution. So these are both about the way that networks and internet are reengineering lots of familiar businesses.
Say the likes of you and I are changing the way everything we do from how we order books to how we order a taxi. And we think that throws up lots of interesting opportunities, primarily in the technology sector. So we like lot of companies in the technology space who are playing to that or benefitting from that.
Wall: And what's the second pick.
Shant: Secondly, we think there is the second derivative of those beneficiaries. So companies in the media space and professional publishing. Who are harnessing these new technologies to their benefit. So they are able to generate more content, more easily and spread it more widely and more cheaply than ever before. So we do like several companies in the media space.
Wall: And that’s the space that has changed fundamentally over the last 10 years. I mean I used to for national newspaper and I worked for purely online publishing. There have been some big losers going back to what you have talked about before in the past about sectors having big winners and big losers. How do you avoid being exposed, to those who perhaps won't make the transition?
Shant: Well the nature of our investment themes is to identify what is this changing in the longer term and then you can start looking at company-by-company. Which companies have understood that and started to adapt say like Morningstar being very online, being very good at digital content. And those that haven’t really understood what’s changing. So obviously those newspapers that didn’t adapt, didn’t adopt their strategy for the online world have kind of already had to make huge cut backs in the editorial content, which then drives lower circulation. So it’s a case of taking that big picture and the long term trend. And taking down to the individual company-by-company analysis.
Wall: And what’s the third and final pick?
Shant: Well, we do like consumer staples, where we think there is a good visibility of earnings and within that we do maybe slightly controversially like the tobacco sector. Where we think the cash flows are great and indeed within that sense companies are in a particularly good position.
Wall: And tobacco, controversial, has had an incredibly good run. It's been the stalwart of many income investors' portfolios. There have been concerns about things like, especially in the western world, people using vaping or electronic cigarettes instead. Is that something that you are concerned about?
Shant: Yes, we have been concerned about it and we have followed it very closely. But our view is that the leaders in the tobacco space are also becoming the leaders in vaping and e-cigarettes, because it is a more complex technology than it would seem. So I think they were helped by the fact that some batteries started exploding, some of the liquid content it was found to have lot of additives in it.
So they have resources to develop safer and easier to use e-cigarettes and they are possibly going to be able to turn it into a new opportunity set. As opposed to or the new entrants who really have been struggling with developing their technologies.
Wall: Raj, thank you very much.
Shant: This is Emma Wall for Morningstar. Thank you for watching.
