Russian Infrastructure: Top of Your Shopping List?

At the recent Investment Week IT Forum, closed-end fund managers explained their top ideas and views on the investing environment

Jackie Beard, FCSI, 3 October, 2011 | 12:52PM
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Last year Peter Hargreaves famously accused the investment trust world of being fuddy-duddies. Last week, at the Investment Week IT Forum, there wasn’t a fuddy-duddy in sight. In fact, it was quite the opposite.

It’s not uncommon to attend such events and see the same faces, particularly at an investment trust forum. So this year I was encouraged to see some new faces--and firms--on the delegate front.

Those that came along weren’t disappointed; it was a day well spent. The Rt Hon Peter Lilley gave the keynote speech to kick the day off. Not only was he the Deputy Leader of the Opposition, he’s an MP who served on the board of JPMorgan Claverhouse for 11 years and Melchior Japan for more than four years. So the world of investment trust investing is something he understands very well.

That said, Lilley’s speech focused on the current eurozone crisis; his most memorable comments, to me, were on the interaction of economics and politics. He said that he’s never known a period when politics are powering economics and interacting as much as they are currently and that, while economics usually triumph over politics in the long run, this outcome was far from certain right now.

For Keynesian fans, he also made the observation that Keynes wrote in a time when there was no sovereign debt crisis and no single European currency.

Lilley wasn’t the only good speaker of the day. Job Curtis, manager of City of London, reminded us of the benefits of an income discipline, both from his perspective as a fund manager but also from a company’s perspective to its shareholders. He cited the fact that dividends have historically grown above the rate of inflation in the major markets, so with interest rates set to stay low for some time, dividends really make a difference to total returns. And of course the closed-end fund structure helps, with the ability to retain income in the reserve account.

Geoff Hsu, portfolio manager of Biotech Growth Trust and employee of OrbiMed, gave a comparison of the biotech industry now with nearly 20 years ago. Hsu’s presentation reminded me of the ultra-long-term mindset needed when investing in such small companies and of course how sensitive they are to politics and factors beyond their control.

The third session was Tom Slater, deputy manager of Scottish Mortgage Investment Trust. Did you know that a child born in Shanghai today has a higher life expectancy than a child born in Washington? I didn’t, until this session. And yet often China is still referred to as a developing country.

Next up was Tom Walker from Martin Currie. Many know Tom for his North American OEIC, but he also manages MC Global Portfolio Trust. He highlighted the importance of countries such as Indonesia, the fourth most populous country with 240 million inhabitants, and cautioned us not to focus purely on China for growth in the East. His colleague, Alan Porter, who manages Securities Trust of Scotland, pointed out that we don’t need to hold emerging-market stocks to have EM exposure. The top 15 brands of Heinz account for 70% of its sales, according to Porter, and 23% of its sales are in EM countries. Even more attention-grabbing is the fact they sell around 650 million bottles of ketchup a year. That’s a lot of sauce.

Vincent Devlin of BlackRock tried to demonstrate the breadth of BlackRock Greater Europe’s wide remit to us, coupled with its decent yield, of 3.5%--not to be sniffed at in the current environment, especially for a European fund. Unluckily for Devlin, all we really wanted to talk about was Greece.

The views of Polar Capital’s Ben Rogoff were consistent with his presentation at our Morningstar Conference earlier this year. He continues to extol the virtues of cloud computing and, given all we’ve witnessed in markets in recent months, sees no reason why technology should be considered a higher-risk sector than any other. He believes Apple is the Tiffany of computing. I don’t think we’ll be seeing Steve Jobs covered in diamonds any time soon, though.

A session from Renaissance delved into Russian politics and the government’s recognition at last that it must invest in infrastructure; hence they launched a dedicated sector fund in July. Manager Takouhi Tchertchian was over from Moscow to explain her investment rationale in person, along with her insights into the Kremlin. Some of the stats were quite shocking: for example, only 48% of landing strips at Russia’s airports have lights and less than 60% are paved. That certainly puts the third runway debate in the south of England into perspective.

Last but not least, we heard from Alex Barr of Aberdeen, on why private equity shouldn’t be overlooked and the abundance of possibilities that are showing on his radar as a result of the volatility in equity markets.

This is just a snapshot of the day. It was a packed schedule with some excellent speakers. It’s good to see new faces at such events. I hope that next time even more advisers will be interested. Russian infrastructure may not be top of your shopping list but I certainly ended the day more knowledgeable than at the start.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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