DIY Investor Magazine
/
September 2016
40
INVESTING IN THE DIGITISATION
OF PAYMENTS
PREPARING FOR ‘BREXIT’
Unfortunately it wasn’t just the torrential downpours
that dampened spirits in June: the UK’s EU in/out
referendum on the 23rd likely won in this regard. With
markets around the world pricing-in a higher probability
of ‘remain’, ‘Brexit’ caught many by surprise. On the
morning following the result, markets plunged. In
the spate of a few days Sterling dropped nearly 11%
against the dollar; the FTSE-250 – the UK’s more
domestically focused smaller-cap market – sank over
13.5%. The ensuing political mayhem left heads rolling
from the spectrum’s left, right and centre.
Although markets have largely recovered since the
result, Alex Crooke of The Bankers Investment Trust
was cautious in the run-up to Brexit. He and the board
of directors – a unique, independent, client-focused
feature of investment trusts – decided almost a year
ago, without taking a view on the outcome, that it would
be prudent to pare-back risk and reduce Bankers’
exposure to the UK. It proved to be the right decision. It
highlights the advantages of a global generalist such as
Bankers: with its mandate to invest in any stock market
in the world, Alex is unrestrained and can shift capital
to where he finds the best value.
THE LAND OF OPPORTUNITY
In a shifting picture of asset allocation for the portfolio
one region that remains a high weighting is the US
stock market. It is by far the largest equity market in the
world. The economy is growing at a faster clip than any
other developed economy, and predicted to continue
as such for at least the next few years. House prices
continue to rise, consumer spending is firm, and the
jobs market is strong with the Fed believing it near full
employment.For Alex, while the economic picture is
important the portfolio’s focus is to uncover promising
stocks at reasonable valuations. The focus for the US
sleeve of the portfolio has been growth-at-the-price
(GARP) - companies in the growth phase of their
development but where the implied growth appears
not to be overvalued. Stocks are picked with the help
of a number of overarching themes. Investment themes
describe where perceived long-term trends underpin
the growth of a particular area of a market, for example
where fund managers believe the application of a new
technology or government policy will continue to drive
consumer demand in a particular market for many
years to come.
CARD OR CASH?
One such theme is Paperless Payments. It represents
the classic scenario where technology is an enabler for
‘convenience’. It regards the shift from cash payments
to digital payments on debit and credit cards, and is
coupled with the adoption of newer technologies, such
as Apple Pay, in developed economies and mobile
payments in the developing economies.
Aside from convenience and time savings for users,
electronic payments are more reliable and secure, and
can reduce transaction costs for businesses. Customer
retention is likely to be higher, with those more willing
to stick with a company or website where they have
formerly entered their personal details. This potentially
increases sales and encourages larger transaction
amounts, explaining why cash as a percentage of
transactions continues to shrink (see chart) while mobile
payments have been rising at a compound annualised
growth rate of more than 50% since 2010.
Alex Crooke,
Henderson
Bankers Investment Trust
