Page 6 - DIY Investor Magazine | Issue 39

‘SWIFTONOMICS’ AND GLOBAL GDP
Nov 2023 6
DIY Investor Magazine ·
The recent Taylor Swift tour is so vast that it has attracted its own branch of economics – so- called ‘Swiftonomics’. The arrival of a high profile popstar can cause a mini-economic boom in specific towns or regions as fans spend on hotels, food and leisure activities. Beyonce’s recent tour of Sweden was even blamed for driving up inflation
Ben Ritchie and Rebecca Maclean
Investment Managers, Dunedin Income Growth Investment Trust PLC
In general, the numbers aren’t large enough to move the needle in terms of economic growth, but they do illustrate a certain propensity to spend. This is encouraging, suggesting that people are still willing to spend on the right goods and services.
This is particularly true for the services sector, where pent- up demand following the pandemic has seen consumers splashing out on experiences and travel. This has given a notable boost to the airline sector, for example.
Nevertheless, while this looks like a good opportunity to re- examine the leisure sector, we have reservations. The airline sector, for example, tends to be highly competitive, with low barriers to entry; it is cyclical and with thin margins. We are searching for companies that deliver resilient dividends through the cycle and the airline sector has historically struggled to provide that.
When it comes to the consumer discretionary sector, we
are looking for companies with niche exposure, a strong competitive position and the ability to weather variations in consumer spending and confidence. These are companies such as Games Workshop, Pets at Home or Moonpig. Our hope is that these will be structural winners, and able to grow through the economic cycle.
‘WE ARE SEARCHING FOR COMPANIES THAT DELIVER RESILIENT DIVIDENDS THROUGH THE CYCLE’
‘IT MAY NOT BE EXCITING, BUT IT IS PLAYING A UNIQUE ROLE IN THE ENERGY TRANSITION’
NATIONAL GRID AND THE ENERGY TRANSITION
National Grid may not seem like an obvious holding for Dunedin Income Growth Investment Trust. Utilities are not our natural hunting ground, and we have just 4.2% of the portfolio in
the sector. Yet the owner of the UK’s electricity and natural
gas transmission networks has a crucial role to play in the country’s move to renewable energy sources. We have recently reappraised the ESG case around the company and thathas allowed us to reinvest.
Around half of National Grid’s capital is in the UK and half in the US. The UK portion is largely invested in electrification, both
in distribution and transmission. It is the transmission element that offers the more interesting growth opportunity, where capital investment could make a meaningful difference to the business’s level of revenue and profits. In the US, around half is exposed to electrification. That is a more complex business, but it is linked to many of the same trends.
It is a regulated business, so returns are shared with its end customers and capped over time. However, it has a good track record of delivering steady returns and dividends for investors and its revenues are inflation-linked. It may not be exciting, but it is playing a unique role in the energy transition and has a range of valuable assets.