Blindingly obvious! The next big thing is probably right under your nose

James Marlay

Livewire Markets

We are often led to believe that as investors, we need to reach for the stars, dig uncharted territory, or do something radically different to find the next legendary growth story and succeed in this game.

But for independent investment strategist Giselle Roux, the best opportunities are often right in front of us, and they’re evolving all the time. Consider Netflix or Buy Now-Pay Later for example – consumers always wanted an easier way of accessing content and making payments.

“Sometimes there are the obvious trends that just haven't quite become the big commercial thing. So you needn't think about some astonishing thing. It's not about going to Mars. It's more likely to be sitting right under your nose.”

Giselle’s more grounded approach to investing stems from her over 20 years’ experience across multiple roles in the industry. Here, she expands on why simplicity is the best method for success and shares two themes she has a strong view on right now.

From your career, what are some of the areas relating to investing, putting together portfolios and picking funds where have you developed particular expertise, and what are you doing with that expertise now? 

I’ve had a fairly long career, so there’s lots of background to it. My foundation was 20 years in equity analysis. Perhaps one doesn't need 20 years, but I think one needs to go through a cycle in an industry or a sector to understand the ebbs and flows of various component parts of investment markets and corporate behaviour. Then in the second phase of that career, you'd like to be able to broaden that horizon to other asset classes to have a greater understanding of how fixed income and other structures such as private equity work, and how they all interact with each other. I think there's a combination of the two, of having some expertise in a certain area, but then being very conscious of what else there is around you that you're not aware of and how to bring that into what you are familiar with. So credit is a natural counterpart to equities.

If you were to summarise the core principles that you hold close when it comes to putting together portfolios, what would you tell people?

There are two things. One is that the portfolio should represent the requirements of the investor. No two investors are going to be absolutely identical, because we all have different attitudes and approaches, different tolerances and timeframes involved. The second is to make sure it's internally consistent. In other words, that you don't have odd things sitting on the side that you ignore, or you need to look at it in an overarching sense. You can't just pick and choose between one or two component parts and ignore the rest.

What are some of the most exciting aspects of investing now, particularly for investors looking at long-term growth?

If I reflect back on all those years, there's been extraordinary amounts of change in every single industry. Something as simple as scanning in the supermarket. When I started as a retail analyst, there were still price labels on every single product. You would be gobsmacked to see something like that now. But in reality, things have evolved enormously rapidly in almost all fields, and so I think we shouldn't ignore the fact that there's constant innovation and disruption. We seem to have used those words overly now with FAANG, but I think it's always been there.

People are looking for easier ways to do things, and if a corporation can come up with some kind of investment solution that makes it easier for people to do what they want to do, that is almost always a winning formula.

The basis for it always lies behind human behaviour. People are looking for easier ways to do things, and if a corporation could come up with some kind of investment solution that makes it easier for people to do what they want to do, that is almost always a winning formula. I would always think about the product or the service in particular, and it's mostly services these days, and say, does that make sense for people's lives? The internet made it easier to communicate with people. The, buy now, pay later space makes it easier to buy things that you want to buy.

Are there any specific areas around investing for the future, some of these things that you have a particularly strong view on?

The irony is that hindsight, it's always blindingly obvious. When you sit here today and say, can I predict what's going to be the big trend in 10 years' time, you really struggle to think about what it is. Yet if you look at something like a Netflix, for example, you think that's blindingly obvious that people would want to view their media consumption that way. So it's the hardest thing, and sometimes there are the obvious trends that just haven't quite become the big commercial thing. You needn't think about some astonishing thing. It's not about going to Mars. It's more likely to be sitting right under your nose. For example, the ageing population issue is not something that's new, but it still hasn't come up with sufficient investment solutions that make it easier. How do you make the financing and the process of people going into their post-working life easier for them? And that's one.

The second one I would argue is slightly more left of field, and that would be things like cybersecurity. We see it lurking in the background all the time. But in my view, the next COVID virus will be an online virus of some kind that is massively disruptive. All those companies that are able to provide more security against it will be chased, just like we're currently chasing every single biotech company that thinks it has got a solution for the virus. It's those kinds of areas that I would look closely at.

So you needn't think about some astonishing thing. It's not about going to Mars. It's more likely to be sitting right under your nose.

What are the best ways to get exposure to these themes?

Because they tend to be quite complex and require people to have that foresight, it's, in my opinion, best done through a fund structure rather than trying to throw at a dartboard and be hopeful. Unless you've got some very good professional insight from a working life, I would strongly suggest you're probably not going to pick that individual stock or a small selection of stocks that will be the next Amazon. I would look at some of the funds where part of their process is about thinking as far as possible ahead of the game.

Take the environment as an example. It is obviously something that will change corporate behaviour quite significantly. You have the BNP Paribas Environmental Trust or Pengana WHEB Sustainable Impact Fund . In other words, these are analysts that are looking for stocks in a proactive sense. It's not just an overlay. It's not an exclusion. You're actually looking for companies that are going to deliver some of these things in the future. You narrow your investment field to them. In terms of cybersecurity, you've got the BetaShares (ASX:HACK), for example, which is a way of accessing cybersecurity type of companies. That would be an easy option for people. The BetaShares ETF is obviously based more on a screening methodology than unique insight into those companies.

How do you see the faster pace of innovation reflected in the conversations you are having with clients?

The word is patience. If you have a portfolio, or you're using a manager who is actively seeking out these things, the performance doesn't necessarily present itself in the first year or two. Look at companies that we're familiar with these days, like CSL Limited (ASX:CSL). It took quite a number of years before they became the company that made people a lot of money. You have to be patient, and you have to be tolerant that this is not necessarily going to be measured in months. It could take four or five years before it really comes through. You've got to have the confidence that you've picked the right people, that they know what they do, they keep you up-to-date as to why they're sticking with what they're doing.

Taking a 10-year view, which Australian funds or companies would you single out as the most progressive or interesting in the areas of high-growth, innovation, ESG or impact investing? 

One of the things I would always want to hear from a manager is how they interpret human behaviour. I think that the data science - being able to take behavioural themes and transform them into some kind of analytical bias, is always quite helpful. Unfortunately, Australia has got such a narrow spectrum of equities that you don't see some of those longer-term trends that you can find from some of the global managers. Global managers look much more broadly into many, many more options, and frankly at lower valuations than what you have available here.

My view is you still tend to see the best of breed from some of the big global-type funds, and in particular, when it comes down to things like environmental screening, the bulk of it here is lip service. The funds here exclude coal mines, which is completely irrelevant these days. That's not genuine environmental screening. I think you need to look at those pro-active managers. The fund that BNP Paribas brought here is probably truest to label in terms of going for environmental solutions.

Do you feel like you need to sacrifice performance to do things like ESG and positive impact investing properly?

I don't know whether you sacrifice performance, because we're always referencing this with regard to the index, and whether we have under or outperformed the index, and that will just depend on market cycles. There was a period where the tobacco stocks did extremely well. The funds that were prepared to hold tobacco, outperformed the index. Then a few years later, they didn't anymore. You will get companies with bad odour that will periodically do well. We could have an oil price spike and energy stocks could go through the roof, and everybody's not holding them.

I don't think you should think about it just in terms of the index per se, because the index is just an artificial construct that's been made up by ASX or S&P, whoever the provider is. You have to look at, what is the rationale for equity performance on a broad base? In other words, is the company growing its profits? What's the cashflow look like? How is it funding itself? If that's sound, you can expect to get what I call equity-like returns, anything between 6% and 8% per annum over a long period of time. 

What do you enjoy most about the job that you’re doing at the moment?

It's talking to a lot of clever people. With fund managers, there are a large amount of interesting people in that field, and then condensing that into a view that you can communicate to an investor circle that makes sense for them. No day is ever the same. Tomorrow morning we'll wake up, there'll be new information available, and there'll be something more to learn. It's one of the rare industries where there should be very little repetition in what one does, because we are constantly moving ahead. 

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James Marlay
Co Founder
Livewire Markets

Livewire is Australia’s #1 website for expert investment analysis. We work with leading investment professionals to deliver curated content that helps investors make confident and informed decisions. Safe investing and thanks for reading Livewire.

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