In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This time our interviewee is Alex Howson, co-manager of the Morningstar 5-star rated Pictet Nutrition fund and senior investment manager of thematic equities at Pictet Asset Management.
Which sector provides the biggest investment opportunity as we approach the end of 2021, and why?
Within our nutrition theme we’re very positive about sustainable farming and the agriculture technology sector such as precision farming. We need to produce significantly more food for a relentlessly growing global population. At the same time, COP26 highlighted that we need to significantly reduce the use of fertilizers, pesticides and water and cut emissions. Given the huge impact our food system has on the environment there is an urgency to develop new technologies, including software and machinery, that can make food production and distribution more efficient with a lower environmental impact.
What's the biggest economic risk right now?
Covid and further restrictions remain a risk of course, but the biggest economic risk is probably inflation. The consensus seems to be that it will be transitory and that the consumer has savings from Covid to draw on. But the disruptions to global supply chains that we are seeing are unprecedented and complex. It could take longer to resolve than the market is expecting, so we are focusing on companies with pricing power and visible cash flows. A slowdown in China is also something to be mindful of.
Describe your investment strategy.
Pictet Asset Management’s thematic investment philosophy is based on a set of megatrends, powerful structural forces of long-term transformation and change, defined by the Copenhagen Institute for Future Studies. Our Nutrition theme covers the entire food system value chain and sits at the crossroads of several megatrends, such as focus on health, sustainability, and demographic development, that act as long term secular tailwinds.
Our approach is based on sustainable food systems. We invest in companies which contribute to shifting our diets and the food supply chain in such a way that will enable feeding 10 billion people by 2050, reducing disease/mortality related to poor nutrition, whilst preserving our planet. We use scientific research and proposed recommendations from health and environmental NGOs as inputs. We do not use any indices to construct the universe or portfolio and are unconstrained with respect to countries, sectors and investment style as long as the company fits our definition of Nutrition. We are specialists of our theme and stock selection is bottom-up driven.
Which famous investor or business icon do you look up to, and why?
Steve Jobs for his determination, creativity and vision.
Name your favourite forever stock(s)
For the long-term we are huge admirers of DSM. This is a company that has completely evolved over a century to become a leading science-based company in nutritional solutions for humans and animals. It is an innovation powerhouse whose strategy is completely aligned with secular trends towards healthier products and positive environmental impact, positioning it for sustainable growth. A great example was their recent announcement at COP26 of a major investment for large-scale production capacity of its novel ruminent feed additive, Bovaer. This product can reduce enteric methane emission from cows by 30% and could be a blockbuster product that plays a major role in reducing greenhouse gas emissions globally.
What would you never invest in?
We only invest in foods that fit planetary and health boundaries – ie. that have a high nutritional value relative to environmental impact, in order to maximise the positive impact on health and planet. This is why foods with empty calories such as carbonated soft drinks, confectionery, fruit juice with added sugars, or food rich in transfats like pizza, cookies etc. do not fit our definition of the theme. Beef and processed meats are also excluded because of their environmental impact and they are deemed to be a type 1 carcinogen according to the World Health Organization. We also wouldn’t invest in unhealthy fast food restaurants, suppliers of plastic food packaging, or manufacturers of fertilizer and pesticides due to their environmental impact.
Growth or value?
We favour companies whose drivers are underpinned by secular growth trends that we can own long-term. This generally leads us to have a natural tilt that may broadly be described as GARP (Growth at a Reasonable Price). But ultimately the exposure of growth vs value in the portfolio will depend on the bottom-up opportunities at any given time, and valuation is always a key consideration.
Pension or property?
Both a house and a pension are core investments, so ideally a personal portfolio should include both plus some allocation to equities. But pushed to choose only one of the two, I would invest in a house. With continued record low mortgage rates, paying interest on a home loan is currently cheaper than paying rent for an equivalent property. With a sensible degree of leverage, a good property investment can achieve significant equity appreciation over a lifetime whilst you also get to enjoy living in it.
Cryptocurrency: Public enemy or pioneering proposal?
The underlying blockchain technology is hugely interesting and I am sure some investors could make fantastic returns from cryptocurrencies. But I don’t own any myself. I can’t justify investing in an asset that has no intrinsic value and where there is no clear method of how to value it. I would like to see a clearer regulatory framework and a solution to its enormous energy usage and emissions.
What can be done to increase diversity in fund management?
There is no silver bullet but we need to promote diversity at every stage of the career path, starting with graduate intake. One thing I would like to see far more widely is an in-house day care/ crèche. Alongside more flexible working arrangements that have been introduced since Covid, I believe this could go a long way to support increased gender balance in senior management positions.
Give us an example of engaging with a company you invested in where you were particularly proud (or disappointed!) of the outcome?
We regularly engage with food and ingredients companies about their portfolios, encouraging management to focus their strategies on healthy products and to strategically review and exit any legacy unhealthy businesses or products they may have. We have several examples where this has played out across our portfolio and we strongly believe that our active ownership can make a contribution.
What's the best bit of advice you’ve ever been given?
Don’t look at emails while playing with your daughter.
What would you do if you weren’t a fund a manager?
Journalist.
