Equities and investing beyond the ordinary

On Wednesday, 12.06.2024, I was invited by Rula Ipsaryaris from Aviva Investors Schweiz GmbH, Zurich, to their roadshow series «Meet the PM» at the «LUGANODANTE» in Lugano. The internationally renowned portfolio manager Richard Saldanha gave a very impressive presentation together with Stuart Empson – both of whom had travelled from London. They explained strategies that beat the demanding MSCI world indices over the years, i.e. generate alpha. The high-calibre audience was visibly impressed and there were many questions, which Richard and Stuart answered with aplomb. The meeting room had a modern design, and Rula’s colleague Cristina Paradiso spontaneously joined her in front of the jungle wall. It was a very successful event, the trip to Lugano was really worthwhile. Thomas J. Caduff, CEO, Fundplat LLC

• Caduff: Mrs. Ipsaryaris, gentlemen: Today you are in Lugano for a very big topic, namely «equity income megatrends». Is this in direct competition with «fixed income»?

Empson: We don’t see this as direct competition – certainly one can access some attractive yields in the fixed income market but they key point on equity income is the ability to grow that income stream over time which is where it really offers investors something quite different to earning a fixed rate of interest. We also know dividend growth plays a very significant role from a total return perspective – history has shown that when it comes to delivering long-term equity returns ahead of inflation the two biggest components are dividend yield and dividend growth.

The megatrends are a way of capturing some of the dividend growth potential as we think the structural growth prospects of the companies benefitting from them will likely lead to higher levels of income growth and potential for higher capital growth.

• Caduff: What megatrends have you identified?

Certainly the biggest one we can see right now is the role of AI in terms of transforming a number of industries. Richard Saldanha

Saldanha: Certainly the biggest one we can see right now is the role of AI in terms of transforming a number of industries – from automating various processes through to autonomous vehicles and even areas such as drug development. This should lead to opportunities in companies that are providing high performance semiconductors (such as Broadcom and TSMC) which are seeing increased demand in data centres. We are also seeing the electrification of a number of industries, from the cars we drive through to buildings (with the adoption of heat pumps) and also within the underlying power grid itself. Electrical equipment manufacturers such as Schneider Electric and Siemens are well placed to capture this demand.

Climate change is also having significant impacts – with more extreme weather events taking place across the globe we are seeing the need to adapt and mitigate against this is becoming critical. As an example there is a huge protection gap in terms of climate-related events which should mean further opportunities for reinsurance companies such as Munich Re.

The final area is around innovation in healthcare. We are seeing enormous strides right now in terms of addressing areas such as obesity and diabetes as well as in oncology. We are also seeing advancements in the use of gene therapies which can be used to treat rare diseases. All of this requires a huge amount of investment by pharma companies such as Merck and Roche into research and development (R&D) – we are also seeing benefits from the use of AI to help optimise drug trials which should help from a R&D productivity standpoint.

• Caduff: How can Swiss investors benefit from your knowledge?

Ipsaryaris: Having a global perspective we believe offers enormous benefits for investors – it means we can capture some of these megatrends but also access the companies we feel are best placed globally to benefit from them. This is also significant in terms of offering diversification within the portfolio. Having said that we do think there are some fantastic companies in Switzerland that we own in the portfolio who we consider leaders in their industries – such as Novartis and Roche in the pharma space and Richemont in the luxury goods space.