Neil Brown

Investing in travel’s Silver Bullet

Neil Brown

Shinkansen, or bullet trains, have been whisking rugby fans across Japan this month at speeds of up to 320 kilometers per hour (km/h). In China, high-speed rail now runs up to 350km/h and it is Europe’s TGV that holds the record for wheeled trains at slightly above 570km/h.

Vitally, these trains are also safe. Since their launch in the 1960s in Japan and 1970s in Europe, the number of fatalities on their high-speed trains is zero. Many aspects feed into such a safety record but advanced braking systems are a key factor as well as an investment opportunity.

Rail also brings many environmental benefits versus other modes of transport: it is 12 times more efficient for passengers than road and air travel, consumes only 2% of global energy despite significant traffic, and is easily electrified. In contrast, those of us taking to the roads and skies are slowed by ever-increasing congestion, while safety concerns – despite technological progress that we continue to play in the funds – and unease about pollution further detract from the experience.

But while the future for rail looks fast, safe and clean, the present-day reality for many of us falls far short of that. EU-wide customer satisfaction figures from 2018 still put air travel top of the list despite those concerns about its sustainable impact; rail, by contrast, languishes near the bottom, lower than banks and in questionable company with the likes of second-hand car dealers and estate agents.

For us, sustainable investment is about finding companies that can solve the biggest issues of our time. We invest in the financial opportunities created by positive environmental and social impacts and believe delivering the rail system of the future can do exactly this.

A well-functioning, reliable and affordable railway has many wider socio-economic long-term benefits. Light rail in cities, high-speed rail between them and freight rail supply chains all drive development and this is reflected in the UN’s Sustainable Development Goal 11.2 “to provide access to safe, affordable, accessible and sustainable transport systems for all, improving road safety, notably by expanding public transport”.

Several inter-governmental and non-governmental bodies are currently driving investment in rail and Shift2Rail in the EU for example has listed five objectives for improving the rail system:

  • Increase reliability and punctuality by 50%.
  • Double railway capacity.
  • Halve life-cycle costs of transport.
  • Reduce negative externalities (noise, vibrations and emissions).
  • Contribute to the achievement of the single European railway area.


One of the key drawbacks of rail travel highlighted in Europe-wide research is the difficulty of buying tickets, particularly for multi-part trips or across regions compared to one-stop flight aggregators.
Trainline – a new holding in our funds is looking to compete with air travel by offering a similarly efficient service for rail, allowing people to combine several journeys and book through a single portal. We believe this will have a big impact on creating a seamless European rail network experience.

Another new holding for us is German brake system manufacturer Knorr Bremse, a clear leader in this critical aspect of rail safety. A supplier to the E6 Shinkansen for many years, Knorr Bremse recently won the supply contract for the new generation of France’s TGV high-speed trains. 

Consider that at any speed over 100km/h, a train driver has to start braking at a point from where the final stopping location is not visible. As high-speed trains ultimately travel above 400kph, stopping distances will stretch further into the kilometres, with the steel on steel connection required to bring the carriages to a stop creating both intense heat and noise.

Simply put, Knorr Bremse’s braking systems can save lives. High-quality brakes allow trains to go faster but also mean more carriages can run on the same amount of track, which can have a major impact on those reliability, punctuality and capacity requirements the industry needs to challenge airlines in earnest. Ultimately, greater density of trains on tracks around the world reduces congestion, brings more people off roads and out of the air and reduces carbon emissions.

These products have a positive impact on our world, which can help to drive high revenue growth and high returns. When we integrate all these aspects into our long-term view of future earnings, we believe these companies are attractively valued and ultimately offer a sustainable investment opportunity.

For a comprehensive list of common financial words and terms, see our glossary here. 

 

Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. The majority of the Liontrust Sustainable Future Funds have holdings which are denominated in currencies other than Sterling and may be affected by movements in exchange rates. Some of these funds invest in emerging markets which may involve a higher element of risk due to less well-regulated markets and political and economic instability. Consequently the value of an investment may rise or fall in line with the exchange rates. Liontrust UK Ethical Fund, Liontrust SF European Growth Fund and Liontrust SF UK Growth Fund invest geographically in a narrow range and has a concentrated portfolio of securities, there is an increased risk of volatility which may result in frequent rises and falls in the Fund’s share price. Liontrust SF Managed Fund, Liontrust SF Corporate Bond Fund, Liontrust SF Cautious Managed Fund, Liontrust SF Defensive Managed Fund and Liontrust Monthly Income Bond Fund invest in bonds and other fixed-interest securities - fluctuations in interest rates are likely to affect the value of these financial instruments. If long-term interest rates rise, the value of your shares is likely to fall. If you need to access your money quickly it is possible that, in difficult market conditions, it could be hard to sell holdings in corporate bond funds. This is because there is low trading activity in the markets for many of the bonds held by these funds. Mentioned above five funds can also invest in derivatives. Derivatives are used to protect against currencies, credit and interests rates move or for investment purposes. There is a risk that losses could be made on derivative positions or that the counterparties could fail to complete on transactions.

Disclaimer

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Friday, November 1, 2019, 9:21 AM