Page 19 - DIY Investor Magazine | Issue 29

Soviet economist Nikolai Kondratiev, by contrast, showed
that long-cycles of rebalancing between income and capital helped maintain ultimate social equilibrium and preserve the system. Sociological studies have suggested similar long-cycle dynamics in societal structures.
For example between 1991 and 2019, the labour share of GDP across the USA, Germany, Japan, the UK, China, France, Italy and Spain, fell by an average of c. 3.7% (Source: St Louis Fed). This also does not account for marginal propensities to spend, with divergences in income trends in favour of the very top- earning brackets.
Were this to reverse, in contradiction of Marx and in support
of Kondratiev, input cost inflation from wages are likely to rise, but moats are also likely to decrease as supply chains are shortened (and the ability to arbitrage costs across jurisdictions decreases). This further feeds a positive feedback loop of rising wage pressures, and likely higher costs.
Structural inflationary pressures certainly, if the market truly believes in them, should pose a tailwind to value by shifting the market demand incrementally towards more immediate realisation of value. Yet Fed Chairman Powell’s favourite word seemingly remains ‘transitory’ for this time, and markets seem largely inclined to believe him.
This seems, however, to overlook his comments on 10/02/2021, which included that the Fed would target full employment. Perhaps most importantly, he noted that many of the benefits of a strong-labour market only arose towards the end of the previous expansion; the Fed is telling us they will run policy ‘hot’.
If we are truly seeing a new prioritisation in policy making towards wage inflation, particularly at the lower end of the wage spectrum (see also Janet Yellen’s recent comments), then the structural inflation backdrop could shift to a new epoch where
price pressures trend higher. All of a sudden, value-focused investors such as the managers of the Momentum Multi Asset Value Trust (MAVT) and the managers of their preferred underlying funds, will be enjoying structural tailwinds.
Borrowing from Ricardo, and his ‘labour theory of value’, this increase in cost control on the side of labour can drive profit expansion without the same deployment of strategic leverage to fund capex.
If we now reverse this and see diminishing labour cost control, productivity boosting spending will need to increase.
Of course, public markets are generally quite appreciative
of this anyway, and publicly listed software-as-a-service companies typically trade on very elevated valuation multiples.
Yet there remain a raft of other unlisted opportunities investors to take on exposure to a whole host of potentially productivity boosting technologies and services.
We note, for example, that NB Private Equity (NBPE) contains a multitude of such companies, offering solutions in software areas such as security, education, and IT infrastructure. These seem like likely beneficiaries of increased capex spending.
Read the latest research on Momentum Multi Asset Value here >
Read the latest research on NB Private Equity here > To buy these trusts login to your EQi account
Select:
Momentum Multi Asset Value Trust - GB0008769993 NB Private Equity - GG00B1ZBD492
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19 DIY Investor Magazine | Jun 2021