Each week, a professional investor tells us where he’d put his money. This week: Peter Michaelis of Liontrust.
Thirty years ago the IBM PC XT was the pinnacle of technology. Today, the iPhone is not only more powerful, but can fit into your pocket and is half a million times more efficient. Meanwhile, advances in healthcare have led to improvements in life expectancy. If a man was diagnosed with prostate cancer 30 years ago, he had a less than 50% chance of living more than five years. Today the odds are 90%.
These transformative developments not only have positive impacts on society, they also have the potential to deliver attractive returns for investors. The Liontrust Sustainable Investment team that I lead focuses on such long-term trends and the high-quality companies profiting from changing the world.
There are three main approaches to managing ethical and sustainable funds and we combine all of these. The traditional approach is to avoid certain industries, mainly because of the negative effects of their products, with examples being tobacco companies and weapon producers. There are other, arguably more interesting, approaches. One is to invest in sustainable themes, often referred to as “positive screening” because funds focus on what they want to own. A third approach is engagement, known as active ownership, where fund managers engage with companies in which they invest to influence management into changing their strategy. Below I highlight three firms we hold to bring our investment process to life.
One key holding is Kerry Group (Dublin: KYG), a food-technology company based in Ireland. Consumers are demanding more from their food, looking for healthier ingredients while retaining an appealing taste and texture. This can be difficult to achieve, so food manufacturers come to Kerry for its expertise in ingredients and flavourings.
Another theme is the transformation of the vehicle industry: key trends include electrification and safety improvements, with developments including automatic electronic braking, collision warning and even the prospect of autonomous driving. These trends require an increase in the semi-conductor content in a car: there is an average of $300 in a traditional car with an internal combustion engine, but this rises to $900 for fully electric ones.
The leading provider of semi-conductor devices is Infineon (Frankfurt: IFX) – growing demand related to car safety has driven its sales growth over the past five years. Infineon also scores well on environmental, social and governance issues by setting challenging targets every year for energy use and staff training.
We also like medical-technology group Thermo Fisher (NYSE: TMO), which is benefiting from the growing need to make healthcare more efficient. Key to this is early diagnosis of the diseases that people are likely to get, based on their genetic make-up. The cost of the DNA sequencing required to do so has fallen dramatically – it is now possible to get DNA sequencing done for less than $1,000. This opens up new diagnostic interventions, and Thermo Fisher is well placed to profit.