Stock-picking tips for a low-growth environment
Schroders’ head of global and international equities says companies that focus on maximising the efficient use of resources will benefit from strong tailwinds in the long-term.
Continued low market growth means investors should only focus on companies that concentrate on sustainable growth and efficient energy usage, according to Schroders' Virginie Maisonneuve
, head of global and international equities at the group, says such firms will be able to weather the economic storm much better than their rivals, and believes carbon-reduction schemes will contribute to company earnings.
"Any investor with a long-term horizon should be minimising portfolio risk by ensuring they invest in resilient companies with highly efficient resource usage and the flexibility to adapt quickly to changing conditions," said Maisonneuve.
"In this environment, picking companies with sustainable growth is more crucial than ever and understanding how sources of such growth might shift is key to building successful equity portfolios."
In a recent FE Trustnet article
, FE Alpha Manager Robin Hepworth said that companies that take socially responsible investing seriously will outperform in the long-run.
Maisonnneuve also thinks companies that ignore such policies could be forced into a U-turn.
"It is likely that pressure will build for governments to adopt regulations and policies more suited to a scarcity framework," she explained.
"For example, policy could incentivise “good” behaviour or penalise – possibly via punitive taxes – companies that inefficiently or excessively consume environmental resources, or contribute far more than their peers to carbon emissions."
"A proven ability for innovation and acuity will be rewarded, as these management teams will have the best chances of adapting to either gradual or sudden change."
"Financial systems will most likely evolve towards a model where capital is allocated to investment opportunities with the best sustainable growth prospects, rewarding companies with efficient processes and resource utilisation, as well as innovators and entrepreneurs," she added.
Maisonnneuve believes that these companies must also be innovative towards their energy usage as they will undoubtedly succeed in the long-run.
"Demonstrable promoters of productivity and efficiency will profit, especially when the efficiency gains are applicable to resources or processes under strain," she commented.
She says these innovations in efficiency will come from companies that focus on their water usage, including its purification and management.
Maisonneuve says this will be especially true for emerging market corporates when the effects of climate change become more evident.
"When thinking about innovation, one must also be open to radically new ideas and technologies that could have dramatic impacts on the established production systems in various industries," she finished.