Ollie Smith: High inflation and recession risks are already coloring our perception of events in 2023. Joining me to discuss that is Alistair Wittet, who runs the Comgest Growth Europe ex UK Fund.
Alistair, thanks so much for joining me. Could I ask you, first and foremost, what your investment philosophy is generally before we get into any of the tricky stuff?
Alistair Wittet: Yeah. So, at Comgest, we are quality growth investors, and quite simply, all we're trying to do is find the best businesses in Europe and to own those growth businesses for as long as possible. It's as simple as that.
OS: Okay. So, let's move on to the topic of headwinds. There's some difficult stuff coming down the line, clearly. As an investor, how do you intend to navigate that?
AW: No, it's a good question, and I think the market has become increasingly sensitive to very small movements. We saw the 0.2% beat on inflation expectations in October, and that's driven a 10% to 20% rally in global stock markets. So, the market is very sensitive to these factors.
As a long-term investor how do we approach this? The first and the most important is to find businesses where we're not having to worry so much about these factors. So, how do you defend yourself against inflationary pressures? The best way to do that is to have pricing power, is to be able to pass that on to your end customers. And how do you deal with high and rising interest rates? Well, there's no better way to deal with that than to not have any debt – so, to be a cash generative business or to be net cash in general. So, I would say, those are the two most important defense mechanisms that these companies have.
Then how do you manage a market environment, which is highly volatile to small sensitive pieces of news is trying to find businesses with idiosyncratic growth, businesses where there is something in their control, there's a theme that they are benefiting from in this particular year, which means the share price will be dominated by those fundamentals rather than being dominated by macro factors.
OS: Right. And as a long-term investor, what are the mega trends that are defining your thinking beyond even 2023, Alistair?
AW: Yeah, I think, there are a couple of big themes that are going to dominate the next decade. The first and probably the most important is the energy transition. Companies across the world now are having to deal with the very real reality that they need to move towards net zero in the next 10 to 20 years. Heineken last week, for example, estimated that the cost of not moving towards net zero would be in the region of €2 billion for that company. And of course, there are other businesses that will benefit from this. There are businesses that can sell solutions into that energy transition. So, that's going to be very important, energy transition.
The second is going to be digitization. The Covid-19 crisis was a massive wakeup call for chief technology officers across the world who from one day to the next had their entire workforce working from home and realized they didn't have the infrastructure to deal with that. So, for software businesses and for the semiconductor industry, this is going to be a very major tailwind for them over the next decade.
And the third is not a new one, but it is no less important, which is aging populations. The Western world in particular is moving towards a situation where there will be a growing portion of the population who will no longer be working and will be aging. And from that perspective, that creates big opportunities for the healthcare companies, in the pharma space, but also in the med tech space. And I think that's going to be another major theme for the next decade and probably longer.
OS: Fantastic, Alistair. It's really, really interesting to see how COVID is still making its impact known in the longer-term future. Thank you very much, Alistair. For more on 2023 and the outlook for next year, check out the rest of our content on Morningstar.co.uk. This week, we are running a special report week on that very topic. Until next time, I've been Ollie Smith for Morningstar. My thanks to Alastair. Goodbye.
