Promoted by ClearBridge Investments
ClearBridge Investments has kept an eye on long-term strategy gains since its inception and believes a similar approach is paramount for any investor.
The global investment manager, which has US$184 billion in assets under management as of 31 March 2021, has always maintained a commitment to long-term results.
This, according to portfolio manager Charles Hamieh, ensures the group is well-placed to analyse key trends in an appropriate fashion, including current market expectations pertaining to inflation and infrastructure as an asset class.
Speaking to ifa, Mr Hamieh said while he believes inflation will rise in the near- term, productivity growth, coupled with demographic changes, will see levels return to the 2 - 2.5 per cent mark over the medium-to-long term.
“Our view is that there isn’t enough structural growth to warrant a consistently high level of inflation. Productivity growth and demographic changes all suggest that inflation will settle in or around that 2.0 per cent range,” Mr Hamieh said, noting that while infrastructure has been sold- off recently, this isn’t an accurate assessment of how inflation impacts any one asset class.
“Historically when you have periods of rising rates, certainly from trough to peak rates, you do get a period of underperformance, and that's a function of two things,” he explained.
“Firstly, portfolio managers generally start to position their portfolio as more cyclical, and they do that by funding out of defensive/growth parts of the universe. Utilities, for example, fall into both defensive and growth, and that impacts near-term performance.”
“The second impact is the duration effect. Utilities and infrastructure are viewed as long- duration assets, so when you have rising rates, there is a perception that the near-term value is impacted. We think that that perception is wrong, and has been proven wrong consistently. It’s not unusual though to see underperformance when rates and inflation inflect as they have been over the last three to six months.”
When it comes to its own global listed infrastructure portfolios, ClearBridge Investments adopts a similar mindset.
“As infrastructure experts, we know there is no fundamental impact on the asset by rising inflation. It really doesn't dictate how we position the portfolio,” Mr Hamiesh said.
“Quite often, it’s other variables like growth and interest rates that have more of an impact on fundamental value.”
“If rising inflation is met by rising interest rates, because of rising growth, then typically we'll position the portfolio into more of a user pays asset. For example, toll roads, where inflation means tolls are rising, but growth outcomes mean that more people are using that asset so more vehicles are driving on that road, or more heavy vehicles are using that road, so revenue goes up.”
“Therefore, it’s more a function of why inflation is rising that dictates how we position the portfolio between sectors.”
It’s integral for investors to be strategic when looking at their portfolio strategy, ensuring that short-term wins won’t be traded off for long-term gains.
While it’s it’s easy to become consumed with what’s making airwaves in the mainstream media, Mr Hamieh said it’s it’s important for investors to take a considered approach.
“As investors, the most powerful thing we have is the ability to be patient and to invest through a cycle and not worry about the day-to-day noise that the market can throw up every now and then,” he said.
“History shows that as long as you remain invested, as long as you can preserve capital and then compound returns through a cycle, that’s really the best way to make money, but that all requires patient investing and not reacting to the noise of the market.”
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This information is not personal advice. It has been prepared without taking account of individual objectives, financial situations or needs. Where an investment product is mentioned, potential investors should seek independent advice as to the suitability of the product to their investment needs. Reference to shares in a particular company, is not a recommendation to buy, sell or hold that stock. Investors should be aware that past performance is not indicative of future performance.
This information may contain forecasts, including in regard to targets, expected returns, PE ratios and dividend yields. Any such statements are based upon research undertaken by the ClearBridge investment team. This research incorporates ClearBridge’s reasonable assumptions and beliefs concerning future developments and their potential effect but are subject to risks and uncertainties that may be beyond ClearBridge’s control. Returns can be volatile, reflecting rises and falls in the value of underlying investments. Accordingly, ClearBridge does not provide any assurance or guarantee that future developments will be aligned with ClearBridge’s expectations, and actual results may differ materially from those expected by ClearBridge at the time of writing.
ClearBridge is wholly, indirectly owned by Franklin Resources, Inc., and part of ClearBridge Investments, LLC.
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