Each week, a professional investor tells us where he’d put his money. This week: Simon Edelsten of the Artemis Global Select Fund.
Our approach to investing is identifying long-term trends that provide growth opportunities, and then look for companies that will profit from them.
One such trend is the global growth in tourism, boosted by the growth of the middle classes in emerging markets. For this theme I would highlight Japan Airport Terminal (Tokyo: 9706), which controls Haneda airport in Tokyo. Formerly a mainly domestic airport, Haneda has expanded into the long-haul international market. As a result it has benefited from a boom in the number of Chinese tourists visiting Japan.
The Chinese government is issuing passports more readily, and its ageing, wealthy population is starting to travel. The numbers of its citizens going to Japan has risen from 8.4 million in 2014 to more than 20 million last year. The yen has appreciated sharply over the past 18 months, and investors assumed this would reduce tourist numbers. The share price of Japan Airport Terminal has fallen from around ¥6,880 to around ¥3,770 in reaction. Chinese visitors are still arriving in great numbers, although possibly spending slightly less while on holiday, which has only a modest effect on Haneda.
Another theme I have identified is companies selling scientific equipment globally to the healthcare industry, academia, materials and food science companies, and for environmental testing. Thermo Fisher Scientific (New York: TMO), a world leader in electron microscopes and spectroscopy, is one such company.
Historically, pharmaceutical companies have been Thermo Fisher’s biggest clients, but now it is finding new customers in academia and food science, increasingly in emerging markets. These customers are, in effect, tied in because the equipment is essential and keeps being upgraded. This means the company has an attractive business model. About half of its revenues are recurring, through maintenance, consumables and updates.
Keeping with the scientific equipment theme, makers of medical devices are also seeing significant growth opportunities as the world’s population ages. Here I would highlight Boston Scientific (New York: BSX), a leading producer of stents and pacemakers.
The US healthcare sector is under pressure in the run-up to the presidential election. Wall Street remembers Hillary Clinton squeezing healthcare providers when her husband was president – and nobody knows what will happen if Donald Trump wins. But the probability is that little is likely to change. There should be limited impact on stent pricing – key for Boston Scientific – as these devices make up a small part of the healthcare budget. In any case, the stock will be less dependent on the US market in the future.
Increasingly, the key markets for Boston Scientific are in emerging markets. Cardiovascular disease is on the rise in many of these countries, and the use of stents is not yet widespread.