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U.S. Remains ‘Vibrant’ Region for Stock Pickers

August 9, 2022 5 min 30 sec
Murdo MacLean
Walter Scott
businessman searching with binoculars
Wavebreak Media Ltd/123RF
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Text transcript

Murdo MacLean. I am a client investment manager here at Walter Scott & Partners in Edinburgh.

I think the first thing I’d say is that the US economy remains sort of very vibrant as a stock picker for us. We’ve always found fabulous companies in every corner of the world, obviously, but there is a reason why the US occupies more than 50% of our global strategy. It’s always been a very productive place to find interesting, exciting, long-term growth stories. And to this end, in fact, the research team here at Walter Scott have been very busy on the ground in the US in the first half of 2022 after, obviously, a couple of years where travel was more tricky. And one of our members, in fact, of the team spent a full five weeks in the US continuously, but he was also joined at various points by some other members of our research team, some of the more experienced people. Together, they visited over 50 companies from coast to coast and in between, and as ever, we met with a broad mix of both owned companies, but also potential investments.

It was very striking to us the extent to which, in some cases, we were one of the first managers to actually get back out there and conduct face-to-face meetings. Whilst we don’t invest in Amazon, the investor relations team there said that we were in fact the first investor to have paid them a visit, which was quite remarkable to hear. At the same time, we had a meeting with the chief executive officer of Edwards Life Sciences, which has been a successful investment for the firm, and as a specialist in artificial heart valves. That was really one of the standout meetings just as we walked through, yes, the near-term challenges, just as we exit COVID and all that sort of thing, but the long-term market opportunity, but also the technology roadmap for a business like that.

And indeed, whilst we’ve just recently seen that Facebook had changed its name to Meta, a meeting with one of our longstanding and largest investments, Microsoft, highlighted to us that in fact they are already a so-called metaverse company, reflecting their large and growing gaming business. So I think from a corporate standpoint, from an idea generation perspective, the US continues to be a very important part of the world. I think that has been the case for many years and I think that will still very much continue to be the case.

When you dig into this sort of economic landscape, there’s no getting away from the fact that the outlook for the global economy is perhaps less positive than it was six months ago. And as I may have indicated, I mean, that is one of the major reasons why we at Walter Scott very much don’t invest from a sort of top-down view. Predicting the direction of economies, either globally or regionally, is a very difficult thing to do, subject to many, many variables. I think our skillset, our primary focus is on identifying good businesses. And whilst the US might have just narrowly avoided dipping into a technical recession, as we heard recently, other economies might be a little less fortunate. Europe is struggling with the same inflationary pressures the US is, but it also faces its own very unique energy crisis. And the continued dependence on Russia and Russia’s gas is still a concern and a fragility that is quite unique, I think, to Europe.

Politically, I think we still see challenges in Europe and that seems to be a perennial, and that’s before we start talking about the UK’s political situation as well, as we go through a leadership contest after Prime Minister Johnson has stepped down. But then as we switch to Asia, which is another very important part of our investment strategies, longstanding investors, in not just Japan but also in Hong Kong businesses and businesses that do a lot of business and generate a lot of revenues from the Asian continent.

That certainly, as a continent, remains pretty much off limits from a travel perspective, at least in the first half of the year, given the ongoing strict COVID restrictions and indeed quarantine requirements. But this also has ramifications for cross-border trade, and that continues to be severely hampered by these draconian restrictions.

We had thought that these would be perhaps behind us by now, and it has been a bit of a surprise that they’ve persisted as long as they have done. But that indeed does mean, I think that for a number of companies and countries in that region, a full-scale recovery may be some time away.

So I think, that said, Asia, again, we still feel optimistic, bullish, about many of those companies’ prospects longer term. In some cases, they are bringing their expertise, which are perhaps based in Japan or other parts of Asia, to Western economies, and I think that the demand for those products and services will continue to be strong. I think, to that end, we certainly have a number of trips planned, not just in Japan, but also South Korea and Southeast Asia for the second half of the year.