As bottom-up global equities investors, our investment universe is vast, encompassing thousands of companies across sectors and regions the world over.

With a strong focus on identifying quality companies within this universe, our approach to stock identification, selection and portfolio construction is fuelled by rigorous desk research, analysis and primary research in the form of research trips.

The opportunity to directly engage with company management teams to get a deeper understanding of their businesses is invaluable, providing us with an information edge that helps us to get a clear view on how well companies are operating, their outlook, how they are tackling issues and their response to the broader economic backdrop.

So far this year, we have attended various industry conferences across the Industrials, Consumer and Financials sectors, along with meetings at various corporate headquarters.

Below we provide some of the high-level takeaways we have identified, which are being incorporated into our portfolio management decisions:

Consumer spending is remaining strong

The US consumer continues to spend at healthy levels, with strong employment conditions and wage inflation remaining supportive. While consumer savings balances are coming down, in many situations they are still at levels higher than pre-COVID. In addition, other factors such as strong equity markets also help with consumer confidence and financial security, acting as a further tailwind to spending. However, there are pockets of weakness, especially amongst the lower income demographic. Several companies have noted signs of down-trading behaviour (switching from expensive/premium products to cheaper alternatives), so we are watching closely for any broad-based deterioration. For now, the consumer is generally in good shape.

M&A activity picking up

We heard from a wide range of industry participants, including a number of merger and acquisition (M&A) advisory groups, that there are more M&A deals in the pipeline than there has been for some time. With market participants gradually adjusting to a higher rate environment and bid/ask spreads getting narrower in some situations, there is an expectation that deals previously on the back burner have a higher likelihood of getting completed. If deal activity does pick up, this should bode well for the small and mid-cap end of the market, which are often acquisition targets.

AI, digitalisation and automation

Unsurprisingly, one of the big recurring themes in our discussions was the topic of artificial intelligence (AI), along with digitalisation and automation. Most management teams flagged investments in these areas as a high priority in order to gain operational efficiencies and to innovate rapidly.

Supply issues normalising

Supply chain bottlenecks and inventory levels are largely getting back to more normalised levels. While issues in the Red Sea and Suez Canal have led to a spike in certain container shipping rates, management teams have not seemed overly concerned about it at this stage.

US Presidential elections

In the lead up to the November 2024 election, the US political landscape continues to garner a lot of media attention, however, most of the companies we met with played down any potential impacts to their businesses. There is a lot to still play out in this respect, but the fact that the two current leading Presidential candidates are ‘known quantities’ provides some comfort about what is to come (even if some of their actions can be very unpredictable).

Pricing tailwinds abating

For many consumer companies, the contribution to organic growth from pricing in 2024 will be significantly lower than we have seen over the past couple of years. As a result, we are hearing companies talk about the more relevant role that volumes will need to play moving forward. Increased innovation and product launches should help in this respect, but there is a risk that some companies, especially those with weaker brand propositions, may resort to increased promotional or discounting activity.

Office real estate under pressure

The office market continues to face a lot of pressure, but most other segments of the commercial real estate market including multi-family, industrial and retail are generally holding up well.

Employment

While employment conditions remain tight, most management teams indicated that wage inflation trends have decelerated and the ability to attract and retain employees is much easier than it was over the past year or two. This is beneficial to companies because the cost of labour is stabilising, meanwhile higher levels of staff retention avoid the inefficiencies that come with hiring and getting new hires up to speed. 

While our research takeaways are wide-ranging, together they paint a clear picture of how companies are seeing the world and the likely management decisions they will make as a result. This helps us to identify opportunities and threats alike and to factor them into our decision-making process.

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