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Mining a rich theme

In the light of a changing outlook for the global economy, fund managers are being forced to rethinktheir strategy.

The economic landscape of the world is rapidly changing. Barriers and regulations, which were significant features in the past, have either been abolished or are in the process of being scrapped.

With the abolition of border controls in Europe and, more generally, the removal of restrictions on international trade, a company&#39s parameters to expand have increased.

Blue-chip companies now think internationally instead of concentrating on domestic markets. As a result, a new wave of mergers and acquisitions is sweeping through almost every industry and creating global powerhouses.

This process has been assisted by an increase in the market penetration of companies based overseas.

The need for maintaining a global outlook is well illustrated by Nokia, whose share price has grown by 62 per cent a year since July 1995. The strong growth does not derive from its activities in its domestic market, Finland, but from the market share it has captured in other countries.

Managers of European and global portfolios do not invest in Nokia because they believe the Finnish economy is booming, they hold the company because of its global success.

Other outstanding examples of companies emb-racing globalisation are Microsoft and AOL.

But it is wrong to believe the theme is restricted to technology and telecom companies. Pharmaceutical, financial and leisure companies are also benefiting from closer international co-operation and the deregulation of markets.

A sectorial and thematic approach toward constructing a portfolio is overshadowing the more traditional method of geogra- phical asset allocation.

Many global portfolios have at least a 4 per cent weighting in Nokia. From a geographical perspective, this is extremely risky as Finland only constitutes around 1 per cent of a global index. However, from a thematic viewpoint, a 4 per cent position in a highly successful company is only logical.

The increasing importance of thematic investing is not only due to globalisation. Other global trends are taking place that are increasing the importance of sectorial asset allocation.

The demographics of the developed world are changing, with populations getting older. By 2010, just under 50 per cent of theUS population will be aged 45 to 64 compared witharound 17 per cent now.

Companies which will benefit from the changing demography of the developed world include pharmaceuticals and financials. While medical advances are contributing to greater longevity, they are also increasing the demand for drugs and healthcare.

The declining role of the state in supporting individuals in their retirement has led to greater demand for private pensions.

As well as getting older, populations are getting wealthier and have more spare time. This development will clearly provide significant opportunities for leisure companies. Many global powerhouses are involved in the leisure industry. For instance, Viacom has created well known brands on a global scale such as MTV, Blockbuster Video and Paramount Pictures. Investors in Viacom have seen their shares rise by more than 60 per cent each year since July 1997.

Of course, in practical terms, global portfoliosconstructed on a thematic basis will have a geographical bias towards the US because many global powerhouses, such as AOL and Intel, are based there.

Investors should remember, however, that any geographic bias is only a side-effect and will not hugely influence the growth of acompany. Whether the US economy is riding high or is suffering from a downturn, global leaders will be those companies demonstrating the know-how, strength and vision to exploit the major themes driving world growth.

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Strong dollar can be a powerful driver of UK dividend growth in 2015

By Robin Geffen, fund manager and CEO 

This year threatens to be a challenging one for UK dividend hunters. Last year saw an all-time record amount paid out in UK dividends — some £97.4bn, according to research from Capita Dividend Monitor. Yet as Capita also pointed out, out the biggest single factor driving the growth in the fourth quarter of last year was easy to identify: the rising US dollar. 

In our view, this trend is much more than simply a one-quarter phenomenon. It is actually the most profound issue to get right as a UK equity income investor in 2015. We believe that the US dollar will continue to strengthen significantly from its current level. This is due more to the US economy’s demonstrable de-coupling from the rest of the world than to a view on the UK. The US has a strong chance of tightening monetary conditions this year without jeopardising growth or de-stabilising its housing market. The same can unfortunately not be said about the UK.

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