It’s all about the kids, Nikko Asset Management investment director global equity, Johnny Russell, told an NZ audience last week.
Speaking at the annual Nikko NZ summit, Russell said investment in general should be targeted at building a better world for the next generations.
But the current generational baton change would also determine “what and how we invest”, he said.
“We need to invest in companies that can withstand the changes coming over the next 10 to 15 years,” Russell said.
As millennial and generation X tastes take hold, he said global equity investors would have to adapt their portfolios to suit with an eye to detail rather than macro-economic issues.
“There are many macro-issues – we all know what they are but we don’t know the answer to them,” Russell said. “We have to look at what we can actually do.”
For the Edinburgh-based Nikko global equity team, the next-gen investment mantra of “future quality” hinges on a four-pillar ranking system for companies covering: management; franchise; balance sheet; and, valuation.
“We can find quality companies but the world is changing at a fast pace,” Russell said. “And we prefer to invest in companies that are ahead of change or that can deliver high returns in the future.”
He highlighted a handful of companies that while still ‘quality’ under current metrics were not well-positioned for the future, including Heinz-Kraft, Netflix and Facebook.
Heinz-Kraft, a recent takeover asset for Warren Buffett in one his rare off-days, tabled a US$15.4 billion brand write-down this year. Russell said the global food giant was still profitable but its large menu of brands was losing favour with younger generations.
“[Heinz-Kraft] is a quality company but it is in an industry undergoing significant change,” he said, led by e-commerce trends and an evolving consumer base.
Likewise, Russell said Facebook, which the Nikko global shares fund sold down about a year ago, had a few issues to confront, which were not just related to a series of bad publicity moments.
He said the social media giant would have to invest a “significant” amount of capital in the years ahead to grow and deal with encroaching regulation.
Inevitably, Facebook’s profits and ability to invest in future projects would take a hit, Russell said.
On the plus side, the Nikko global team had tapped into the growing global “wellness” trend, he said, that was primed to benefit from aging populations in the developed world and developments in healthcare technology.
Health-related spending represented between 20-30 per cent of GDP in developed countries and was set to rise with governments bearing much of the burden.
Companies capable of “taking cost out of the healthcare systems” would be in a good position to profit from the trend, Russell said.
Businesses such as Philips, which had a big stake in ‘wearables’ and personal care technology, and US “in-home” healthcare firm, LHC Group, feature in the Nikko global shares portfolio.
“Wellness and healthcare are long-term trends,” Russell said.
He was a last-minute stand-in at the NZ event for Nikko Europe investment director equities, Grieg Bryson, who suffered an injury en route.