As we read the papers and look at our screens, the images from Ukraine are harrowing. The impact of the conflict on politics, culture and many individual’s lives will be enormous. And to reduce the analysis to a consideration of the financial implications appears at times to be unsavoury; but in our roles as fund managers and as custodians of your savings, it is necessary.
The short-term reaction has been to extend the market movements seen in January but for somewhat different reasons. Risk assets have suffered but with energy and mining related securities rising significantly, supported by a sharp rise in commodity prices. This has been detrimental to the performance of the funds that I manage thanks to their bias towards the long-term ownership of high quality businesses with pricing power in non-commoditised goods and services.
Barring what we currently believe to be a relatively small risk of the conflict broadening out beyond Ukraine, the history of financial reactions to isolated conflicts suggests that this short-term reaction will be just that. With the information that we have at present, we believe that it is most likely that investors’ focus will soon return to concerns around inflation and the risks that necessary higher interest rates could bring.
Against this backdrop, our investment strategy remains unchanged. We will continue to focus our time and efforts on the businesses in which we consider ourselves genuine owners.
In February alone we were pleased to see Unilever report increased full year sales of 4.5%, half year profits at Dechra Pharmaceuticals up 22% and the full year dividend at Kering up by 50%. And our hopes for these companies looking forward remains promising. We think that fridges will remain stocked with Hellman’s mayonnaise from Unilever, pets will continue to need medicines provided by Dechra and consumers will still aspire to own Gucci handbags sold by Kering.
We believe that our ownership of these kind of high quality businesses will survive war, inflation and interest rates and produce a pleasing return for investors in the long run.
James Godrich, Fund Manager
James is the manager of the Coleman Street Investment Service
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
