View more on these topics

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.

Recommended

Fear factor becomes a reason why not to sell PPs

IFAs could be too afraid to sell personal pensions because of fears of justifying their advice through reasons why not letters, claim pension experts.They predict personal pension sales will be artificially driven down by as much as 50 per cent as IFAs fear a retrospective review of personal pension sales after stakeholder.The concerns have emerged […]

Nurses say Govt&#39s LTC funding proposals won&#39t work

The Royal College of Nursing claims the Government&#39s long-term care proposals, where the state will pay for nursing care but not personal care for the elderly, are unworkable.It claims the Government has created an artificial distinction betweenthe two and has written to Health Secretary Alan Milburn to voice its concerns.The RCN says it believes all […]

Money Channel loses Faith

Former pop heart-throb Adam Faith has stepped down as executive director of the Money Channel, the TV station he founded.The company announced interim losses of £4.9m last week. It has attracted weekly audience figures of only 130,000, a figure it is looking to boost through a shift towards the sale of on-screen services with digital […]

No cloning around

Many IFAs are steering clear of biotechnology funds, saying they are too risky for the average client. Recent biotech developments have seen the sector pushed into the spotlight but IFAs are warning that these funds are not for everyone and it is essential for clients to be fully informed.Chase de Vere investment marketing manager Ian […]

What are the key changes to transform pensions?

By Fiona Tait, pensions specialist In her final article for Royal London, Fiona Tait reviews key changes she believes have transformed, or will transform, pensions. In my 12 years with Royal London I have been paid to review, study and explain the numerous changes to pension legislation which have transformed our industry in that time. This is […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com