Stockopedia had the pleasure of attending the recent Mello event in London. Below are notes on some of the day one presentations:

Gervais Williams, Miton Group

Unsettled markets: The implications for the smaller company sector

  • Miton has £1.5bn AUM
  • Gervais Williams' (GW's) big investment themes going forwards are:
    • the implications of phasing out quantitative easing and a global shift towards tighter monetary policies
    • Correlation across markets
    • Portfolio positioning

GW's take on economic conditions and outlook

  • Productivity stagnation around the world is increasingly being linked to QE
    • Productivity flat-lined globally in 09/10, picked up a bit but has since reverted
  • QE was the right call at the right time but it probably lasted too long and outstayed its welcome
    • Flushing the system with money has led to sub-optimal capital allocation (less capex, more dividends) and bubbles
    • A Warren Buffett quote occurs:  'Only when the tide goes out do you discover who's been swimming naked'
  • QE has been phased out in the US, the UK, Europe and other places & is now back down to mid-Noughties levels
  • People have been voting for political change (Brexit, Trump, Five-Star in Italy) —> this will drive changes in long-term economic trends
  • Liquidity is decreasing around the world —> emerging markets that are marginal borrowers are at risk of entering recession/stagflation; this will also happen to marginal borrowing companies
  • GW's 'risk radar is on maximum right now' (note to self: buy risk radar)
  • Markets are de-rating everywhere. The FTSE has fallen from 14.6 times earnings to 12 times earnings (December 2017 up to November 2018)
  • Unlikely tail risks are increasing
    • eg. US sanctions on Iran oil
    • The world needs c90-100m barrels everyday
    • If war breaks out in gulf regions, oil flow will be compromised
    • If oil price goes up to c$100, there could be a spate of recessions (what can we do? We used up a lot of ammo in wake of '08)
  • Dividend covers have come down —> companies will be quicker to cut dividends this time around

Miton strategy

  • There are still plenty of agile, well-financed companies around
    • eg. Kape Tech (LON:KAPE), which is in cybersecurity (note: Paul Scott also mentioned cybersecurity firm Intercede - LON:IGP)
  • Choose companies with very strong balance sheets, net cash, low net debt, or high cash flows relative to debt
  • Companies' share prices are selling off faster and more steeply on bad news

Unlock the rest of this Article in 15 seconds

or Unlock with your email

Already have an account?
Login here