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Unpredictability a key investment risk in 2018

Ian Warmerdam  |  12 Jan 2018Text size  Decrease  Increase  |  
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2017 has been another year when we were reminded just how challenging it can be to predict macroeconomic and political events.

Whether it was the early year enthusiasm for what a Trump presidency could mean for US corporate tax, healthcare reform and infrastructure spend; the path of interest rates around the world, or the ever-evolving political landscape, predicting these changes and the impact they would have on financial markets was as tough as ever.

Key themes likely to shape the markets

We continue to focus our analysis on high-quality innovative companies from around the world that are well-placed to benefit from what we believe are the more predictable societal and demographic trends shaping markets.

A number of long-term structural growth trends that we believe are under-appreciated by the market continue to shape our strategy. These include the ongoing shift from cash to paperless payments; the transformational effect of the internet; the ageing global demographic and the consequences this is likely to have for healthcare spend and innovation; the quest for greater energy efficiency across a wide range of industries; and the continued growth of the emerging market consumer.

We think that these will continue in a much more predictable fashion, proving attractive and growing end markets for companies that can build long-term competitive advantages.

Risks, opportunities on the horizon

Trying to predict geopolitical and economic news flow and the short-term impact this could have on markets continues to be a key risk, which is why we approach investing with a long-term mindset.

Our investment decisions are made with a five-year time horizon and we see the risk of losing money as more relevant than relative underperformance.

Many of the companies we analyse and invest in are beneficiaries of the previously mentioned long-term sustainable trends. We choose to focus on these rather than the much less predictable factors that can influence markets.

Our strategy will continue to invest in companies that have high-quality characteristics in terms of their franchise, financials and their management. We believe that this will provide resilience during periods of market uncertainty, allowing us to invest for the long term as these trends take hold.

As we look to invest in these companies we will continue to adopt a strong valuation discipline, always conscious that to generate long-term absolute returns we need to be investing in companies at an attractive price.

With the continual move up in overall market levels, particularly in the US, we are acutely aware of the need to stay true to this discipline. 2018 will be a year when this will be as important as ever.

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Ian Warmerdam is head of global equities with asset management firm Janus Henderson. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.




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