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 this Article with a 14 day free trial

or Unlock with your email

Already have an account?
Login here