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GAM Talks Q2 19: Why should investors consider your asset class?

11 April 2019

We asked a group of our portfolio managers a series of questions about their respective asset classes. This first video, in a series of three, examines their current outlook and why investors should consider their asset class.

Q1: Why should investors consider your asset class?

Christophe Eggmann on Healthcare

Healthcare stands for innovation and we think innovation is what gives a company pricing power, market share gain and strong cash flow generation which may translate into higher returns for investors. We think against this background it is not surprising that healthcare has been one of the best, if not the best, performing sector over the last 30 years.

If we consider the past 10 years, we think amazing things have happened as there have been so many disruptive technologies and innovations. Here are three examples: targeted and immuno therapies may eliminate the need for chemotherapy in cancer treatment, which would be a huge leap forward; gene therapy is another example - the first gene therapy has been approved by the FDA at the start of this year and this could change the way rare diseases are treated and also provide new possibilities in areas where there are no treatment options; and finally digital health / artificial intelligence which could disrupt the way healthcare is delivered to patients.

If we look to the future, we think there are amazing technologies emerging, such as next generation cellular therapy, synthetic biology, 3D molecular imaging, aging reversal and universal transplants. We think all these innovations will continue to bring and provide attractive returns to investors. In short, we believe we are living in very exciting times when it comes to the healthcare sector.

Niall Gallagher on European Equities

The prospects for European equities are better than is generally recognised, in our view. There is quite a lot of bearishness around the economic outlook, which we believe comes from some of the confusing headline data, but we are not seeing this come through in the bottom-up data. The evidence we are receiving from companies is that the economic environment remains pretty decent; there's decent prospects for growth and the valuations of the companies that are economically exposed are still quite attractive. We think given the pervasive negativity that exists around the asset class now could be good time to accumulate exposure.

Anthony Lawler on Systematic Investing

One of the benefits of systematic investing is that we can look at data beyond the simple fundamentals by looking at big data sets, alternative data and technical data. Such breadth is quite helpful when markets are either very extended, as they can be late in a cycle, or when things change quickly. Our models have the ability to adapt to this environment and adapt to things other than just pure fundamentals.

Mark Hawtin on Technology

We think technology is still a fascinating area for investment. Ever since the instigation of the first computers over 50 years ago there has never been a more disruptive phase in technology than we see today, driven by cloud computing, by the network effect, social networking and all sorts of other opportunities to disrupt existing business models. One of the most interesting opportunities that we’re looking at this year is around transportation as a service (TaaS). We are all aware of companies such as Uber and Lyft, but there are many other companies in this area of investment that we believe may offer considerable scope for returns in our view. By some estimates TaaS could become an USD 8 trillion market – that's the equivalent of 10% of global GDP. There are many other areas of technology as well that are continuing to grow or have been growing for some time and still have plenty of runway left in them: the adoption of cloud infrastructure, software as a service, the disruption of retail, the disruption of advertising – these are all very significant growth opportunities and have many years of positive outlook in front of them.

Paul McNamara on Emerging Markets Fixed Income

The economic backdrop at the moment is a continuation of what we've seen over the last few years – growth in the US is fine, while Europe has avoided a lot of the hazards that we saw last year – so it's worth trying to position for growth-centric asset classes with a bit of yield. Emerging market debt is clearly one of the few remaining asset classes where yields remain high. The key here is that recessions (both inside and outside the US) have to be avoided and the ideal would be to stay clear of any major tightening from central banks. We think the base case is if you're getting high coupons and plenty of income from an asset class, now could be a good time to lock those in.

Christian Gerlach on Commodities

The asset class is interesting at the moment for two reasons. Firstly, it can act as an inflationary hedge – it's one of the best inflationary hedges out there – and secondly it's very cheap. So at present investors are getting both things delivered at the same time. The inflationary hedge basically works through positive carry; you have backwardation (backwardation exists when demand outweighs supply, leading to higher prices) and this is the unexpected inflation which comes into the system and enables the asset class to outperform other risky assets, such as equities. This is a major advantage of the asset class, in our view. At the same time, the asset class hasn't participated in the last ten years of broader asset inflation so it is now very cheap, it has fallen almost 70% since its historical high in summer 2008. Today, we believe you get a pretty good hedge against any inflationary hiccups and you get this at an attractive price.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Reference to a security is not a recommendation to buy or sell that security. Past performance is no indicator for the current or future development.