Simon Clements

Simon Clements’ letter from America

Simon Clements

Simon Clements' letter from America

As our friends across the Atlantic gear up for a day of feasting, “football” and family this Thanksgiving Thursday, Simon Clements reflects on his recent trip to the US, and the investment opportunities arising in Boston, Chicago and Milwaukee.

Boston is home to two of the world’s best universities in Harvard and MIT and the med-tech industry. It is therefore a fertile breeding ground for companies within one of our sustainable themes, Enabling innovation in healthcare, and an ideal starting point for my recent week-long tour of the US.

I spent my time just outside the city, catching up with the largest holding in the Liontrust SF Global Growth fund, Thermo Fisher Scientific, the global leader in life science technology. This company supplies the kit needed in research laboratories across the world and has developed deep relationships with its customers, listening to their needs and finding ways to solve their problems.

One example involves its biotechnology customers, many of which were looking for a partner to help manufacture new drugs when they were approved. Building manufacturing capacity, and meeting all the stringent regulatory requirements that are part and parcel of making new drugs, is a heavy burden on a small biotech business.

To meet this need, Thermo Fisher acquired a company called Patheon, which allows these smaller biotech firms to outsource manufacturing. This deal has been hugely successful, as the Patheon business has been able to build more capacity and has also gained exposure to Thermo’s huge book of biotech customer relationships. The customers are ultimately the big winners: they have a trusted partner in Thermo Fisher to help bring the innovative therapies they have developed to market, allowing them to concentrate capital back onto creating more innovative treatments.

Next on my itinerary is two days in Chicago, attending the Global Industrial Conference. Here I met more than a dozen companies across the full spectrum of the industrial space. Another long-term holding in the SF Global and Managed portfolios is Minneapolis-based Ecolab, a global leader in products that look to cut use of important resources, particularly water, for its clients across the world.

By cutting water and energy use, it also reduces costs for its customers and has a reputation for great service and product innovation. Ecolab is a strong fit for our improving the management of water theme: it has a very defensive business model and was one of the few companies able to grow earnings over the downturn in 2009.

Ecolab also talked about a new innovation it has been developing for Amazon, a polymer that reinforces the strength of recycled cardboard. It ensures recycled cardboard is of suitable quality for parcel delivery and also cuts the amount that needs to be used, highlighting another example of this fantastic business using innovation to cut resource usage for its customers.

After a busy two days, a 90-minute car journey from Chicago brings me to a cold and wet Milwaukee, in the state of Wisconsin. There, I visited another long-term holding for the Global and Managed funds in the shape of Rockwell Automation.

This is a leader in the application of automation and associated software to factory floors across the world. Its products are specifically designed to use power more efficiently, improve safety and reduce defects on the automation line, and it comes under our improving industrial and agricultural processes theme.

Rockwell is bringing the concept of the “Connected Enterprise” to the factory floor of its customers. This is propelling technological advances made in areas such as big data, which collects real time data and monitors a factory line to ensure a fault is picked up before it gets assembled into a final product.

The cost to its customers of product recalls is huge and the benefits of an automated production line that detects these faults is therefore very clear. Rockwell Automation’s clear technological lead ensures a business that grows well above its industrial peers and it makes very strong returns, driven by the high software content in its business mix and the importance it places on Return on Invested Capital in its business decisions. Rockwell Automation is a high-quality business, and is benefiting from the need to make industrial processes more efficient.     

All in all, a busy week but extremely useful to see a number of our holdings face to face and build our confidence that structural dynamics such as the shift to a digital economy, the drive to improve efficiency and the importance of improving quality of life, continue to drive earnings whatever the economic noise in the background.

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.

Wednesday, November 21, 2018, 4:05 PM