Portfolio positioning will serve investors well


Scott Cooper | Investment Professional | Marriott Investment Managers | mail me

The beginning of 2021 was all about ‘reflation’ – a belief that massive fiscal stimulus, historically low interest rates and the reopening of economies on the back of COVID-19 vaccinations will drive an economic boom placing upward pressure on inflation.

Although we expect a strong recovery in GDP growth and higher inflation in the short term, we do not believe these inflationary pressures will be sustained.

This belief is driven by four core considerations:

  • Base effects, caused by the disinflation which occurred in many economies in March and April last year, temporarily distorting the reported inflation upwards.
  • Upwards inflation pressure caused by supply chain bottlenecks will reduce over time.
  • An uneven global recovery will act to curtail global inflation.
  • The global debt burden will likely prove deflationary in the years ahead.

Considering portfolio positioning for a longer term

Looking ahead, we believes investors should consider their portfolio positioning for the longer term as the market comes to realise that the economic road ahead will be a challenging one.

We continue to believe a portfolio of high-quality, diversified, multinational companies with robust balance sheets and track records of delivering increasing dividend streams will serve investors well.

Companies of this nature tend to be less volatile and more resilient, making them more predictable and less likely to come under pressure in the months and years ahead if growth and inflation do not live up to the elevated expectations currently being priced into the market.

Our investment process (see diagram below) applies a stringent filter process when selecting companies for our portfolios. This ensures we hold only top-quality companies that can reliably grow their dividends through all stages of interest rate, inflation, business and economic cycles for a successful long-term investment outcome.

Performing well in an inflationary environment

The companies that make it through the filter process tend to be market leaders with strong brands and pricing power, boast robust balance sheets and cash flows, and produce goods or services that are integral to the lives of their customers.

These qualities enable them to perform well in an inflationary environment and when times are tough.

The table below outlines some of the companies held in our international portfolios which have announced meaningful growth in dividends despite the economic uncertainty brought about by COVID-19:



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