Investing globally gives investors more choice

We continue to see opportunities in global investing driven by the reshaping of globalisation, reorientation of supply chains, technology advances and impact on pricing power. This has been a boon for places like Vietnam, Indonesia and Mexico.

We are also seeing companies shift their assembly lines from one single area. For example, companies such as Taiwan Semiconductor are building out fabrication plants in Japan and Arizona. This is to make them less dependent on one single country. Added to this, COVID-19 disrupted supply chains coming across the Pacific, leading to changes in how supply chains and assembly systems are oriented. These shifts could potentially bring opportunities when we consider companies that build the fabrication plants and the automation that will take place across new assembly lines.

Looking at manufacturing companies specifically, we are seeing more and more advances in technology. We know full well the power of industrial robots to do some of the more repetitive tasks in assembling machinery, cars and iPhones, for example. But we are seeing a combination of sensors and more sophisticated automation software packages, which allow companies to automate far more than they were able to five years ago and certainly ten years ago. These levels of innovation could easily see productivity offset some of the increased costs from onshoring.

Another factor to consider in assessing the impact of these transformational shifts is pricing power. Amid heightened inflation, we need to assess how much of that inflation will land on consumers and how much it will erode the margins of companies. In our view it is important to assess this on a company-by-company level. Some companies won't be able to pass on the costs that they're incurring and that will impact their margins. Other companies will be able to pass on the costs to willing consumers and perhaps even improve their margins by productivity enhancements.

Overall, investing globally as opposed to regionally still has significant advantages. Firstly, many companies around the world continue to derive a huge amount of their revenues and profits from markets outside of their home market. For instance: roughly a third of revenues of large European companies come from emerging markets, most notably China. Another third comes from North America, most notably the United States, and the final third comes from Europe.

Investing globally also gives you more choice. You don't have to buy one air conditioning company in Europe, one in Japan and one in the United States across three regional portfolios. You can buy whatever you think is the best and most attractively valued air conditioning company in the world. Choice is always important when it comes to active management. The significant changes that are going on in the world will accrue to companies wherever they're domiciled.