Connections - investment views from Janus Henderson (UK)

We are closing this channel, but all Janus Henderson audio content is still available on our globalised podcast, Connections: Investment Matters.

Please subscribe here to continue receiving timely market updates and insights on key investment themes from our subject matter experts at Janus Henderson Investors.

Thank you for listening.

Adam Hetts, Global Head of Portfolio Construction and Strategy, speaks with Portfolio Manager Nick Schommer about how an independent mindset has shaped his investment approach through a volatile ‒ and unique ‒ COVID environment.

Key Takeaways:

• Each economic crisis presents different challenges, and the COVID investment environment ‒ marked by aggressive stimulus and consumer strength ‒ has certainly been unique.
• A favourable monetary and fiscal backdrop, along with ongoing bouts of volatility, have created value in some unexpected areas of the market thus far.
• As we enter the next phase of recovery, we believe opportunity may be found in identifying companies with pricing power that can grow earnings and cash flow in an environment where we are likely to see structurally higher inflation.

Inflation, rising interest rates and coronavirus variants could create volatility in financial markets heading into 2022. But in this episode of Research in Action, Director of Research Matt Peron explains why economic growth could still continue in the new year and what that means for equity investors.

Key Takeaways

• As the global economy continues its post-pandemic recovery, above-average inflation, changes to monetary policy and a number of other variables could combine to create volatility for equity markets in the first half of 2022.
• But we think this volatility will reflect a transition to the mid-part of the economic cycle rather than the end, with more sectors potentially participating in market gains.
• In addition, the shift from growth-at-any-price to growth-at-a-reasonable-price could finally gain traction in markets, benefiting a broader set of stocks.

Technology plays a pivotal role in the transition towards a more sustainable world and is a deflationary force. This podcast explores these themes and the investment opportunities.

Key takeaways:

• Technology is providing solutions to major environmental and social challenges, and as a consequence, providing attractive long-term growth opportunities.
• Tech innovation is inherently a deflationary force, alleviating labour, natural resources and other supply shortages by improving efficiency and productivity.
• Permeating every aspect of our lives, technology is a truly broad sector, offering an opportunity set going beyond the standard classifications of a tech company.

Adam Hetts is joined by UK equities portfolio managers Laura Foll and Indriatti van Hien in a discussion around valuations, the impact of rising inflation, dividends and responsible investing.

Key takeaways:

• UK equities continue to be undervalued compared to other regions, with domestic-focused smaller companies in particular providing the most attractive opportunities.
• UK equities are forecasted to deliver a 20% dividend rise this year, providing a comparable dividend yield versus international markets such as the US. 
• Rising inflation is creating mispricing opportunities. Companies that have strong pricing power and balance sheets are better positioned to withstand inflationary pressures and supply chain issues.

In a new series from Janus Henderson, Research in Action, Director of Research Matt Peron explains the magnitude of the energy transition now taking place in the economy and what investors should consider as the switch to renewables unfolds.

Key Takeaways:

• In the US, the shift to renewable energy could require as much as $1 trillion in spending per year, with implications for almost every area of the economy.
• While that level of spending may not be feasible, significant investment is occurring in select technologies that will be key to moving the transition forward, such as battery technology.
• Diversification can help manage downside risk as technologies emerge. A pragmatic approach to investment timelines is also important. Real-world constraints, for example, could create near-term volatility for long-term investment opportunities.

In the latest episode of Global Perspectives, Head of Global Sustainable Equities Hamish Chamberlayne and Portfolio Manager Aaron Scully join Adam Hetts, Global Head of Portfolio Construction and Strategy. The trio dig deeper into sustainable investing, discussing how ESG analysis is more than just a "score" and how sustainable investing truly impacts the risk and return of all investors’ portfolios.

Key Takeaways:

• ESG analysis should consider the physical and transition risks associated with climate change. Transition risk is the risk that a company’s business model will not adapt to the move toward a green and clean economy. Meanwhile, the physical risks of climate change go beyond hurricanes and floods and should consider where a company’s assets are located and what this means for its business.
• There are many examples of technology driving productivity and being deflationary. In many cases, renewable energy is cheaper than traditional thermal generation for electricity. We expect the price of renewable energy to continue to come down and the adoption of renewal energy to increase, which should be deflationary over time.
• We are standing at the beginning of what appears to be a transformational decade with an expected acceleration in investment and deployment of clean technologies across multiple sectors and industries. We believe that transformations can be driven by decarbonization.

Jenna Barnard and John Pattullo, Co-Heads of Strategic Fixed Income, join Adam Hetts, Global Head of Portfolio Construction and Strategy, to talk through their views on bond markets. They explain why they think bond yields have behaved logically throughout the year and why they disagree with the pervasive linear thinking of higher bond yields ahead. Bond markets are signalling where interest rates are heading but people seem to be oblivious to the message.

Key Takeaways

• Bond yields in 2021 have behaved logically, reacting to the rate of change in economic data. As such, the peak in sovereign bond yields (in March/April) coincided with the peak in acceleration in the rate of economic growth. Yields have since declined with the deceleration in the rate of change of economic data and not, as the media would put it, because of short covering or the Delta variant.
• A clue to the bond market’s thinking on the long-term outlook for rates came after the US Federal Reserve announced two rate hikes in 2023; the yield curve flattened as it would at the end of a hiking cycle, signalling a lower long-term neutral rate of interest.
• Next spring/summer will prove interesting for the bond investor. This is because we expect to see a reverse base effect – i.e., the base effects that drove inflation up this year will be very hard to beat next year, and we expect to see the first signs of what the structural outlook will be in terms of inflation. We are open‑minded to potential new lows in bond yields occurring next year.

Join Adam Hetts as he speaks to Jim Cielinski, Global Head of Fixed Income, about the direction of inflation and some of the potential pitfalls in traditional “inflation protection” tools.

Key takeaways

• Base effects are distorting inflation figures; a permanent rise in inflation likely requires a closing of the output gap and momentum in wage inflation.
• Treasury Inflation Protected Securities and floating rate securities may solve one type of risk but can open up investors to other underappreciated risks; what’s more investors are not absolved of the need to avoid overpaying.
• The world may be less synchronised exiting the pandemic, creating potential opportunities for active investors in emerging markets and across the credit spectrum.

Glossary

TIPS: Treasury inflation protected securities are government bonds where the principal value adjusts with inflation.

ABS: Asset backed securities are financial securities that are ‘backed’ by assets, such as loans, credit card debts or leases. They offer investors an opportunity to invest in income-generating assets.

CLO: Collateralised loan obligations are a single security backed by a pool of underlying debt, typically loans issued to corporations.