Disruption unavoidable but investing fundamentals unchanged
Equity investors need to re-examine their portfolios and ensure they are prepared for any disruption of the sectors into which they have invested, according to the head of a boutique fund manager.
However, identifying these stock and companies is not difficult with good potential companies exhibiting the same features as strong past performers, according to Hyperion Asset Management, managing director, Tim Samway.
In encouraging investors to look at areas of disruption Samway said investors needed to look long term and question whether companies into which they have invested will still be relevant in five years time.
"Disruptive technologies are shaping our future and investors who don't look outside mature industries for future growth will find themselves saddled with a stagnant portfolio," he said.
According to Samway, investors may need to overlook familiar investments in favour of new businesses, or changes to existing businesses, as many capital intensive incumbents will be impacted by change but lack the agility or ability to adapt.
However investors needed to be aware that change and disruption did not automatically guarantee returns and not to be caught up in hype or ambitious forecasts made before new technology has reached mass consumption.
He said "embracing the new can feel like succumbing to fads and short termism" but investors should focus on the same criteria they have always used including predictable and consistent cash flow, strong management, growing an addressable market, and pricing power.
"But most important of all, to succeed, these companies require a valuable customer proposition that can tear a customer away from an existing supplier and satisfy the customers need so completely that the customer won't return to the old supplier. We suggest you put yourself in the shoes of a customer to test each proposition."
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