The Global Megatrends that impact you and your investments every day

Our last speaker of today's global perspectives is Mr. Grant Pearson from InSync Fund Managers.

InSync's investment strategy is simple, but requiring great discipline and the ability to think differently.

They're looking for large tailwinds that can propel them far ahead of whether their competitors or the markets are soon.

These are called mega trends.

Founded in October 2009, the fund invested in a concentrated portfolio of very large global companies.

Key team members all invest alongside investors and are also shareholders of the firm.

Grant's 31 years of industry accomplishment spans Australia, Asia, and North America, across both the buy and sell sides of the industry.

His experience encompasses funds management, life insurance, investment banking, broking, and the retail advisory sectors.

Grant's presentation topic is the global megatrends that impact you and your investments every day.

Welcome, Grant.

Well, thank you.

Over the next 10 or 12 minutes, I hope to give you a good insight as to why mega trends are so important for all investors, no matter who you're investing with.

This first picture that you see on screen is of three lines.

The bottom line, the green one bouncing along there.

That's the most overly used measure of what is seen to assess a good stock or not.

It's called the price earnings or PE ratio.

Now, the problem with them is that they're always looking

backward in the rear view mirror.

And if they do look in front, it's literally just to the front of the nose.

They're not looking out long enough as to what's actually taking place in the world.

So we are far less interested in what everyone else looks at.

The other two lines, the blue one and that reddish purple line is the price and the earnings of the market.

And we can see a very strong relationship there between as earnings grow, prices move along with it.

never in lockstep, but the trend is extremely clear.

So our research has shown us over the decades that if we can find actual companies that exhibit that same relationship between earnings growth, superior to everyone else, its stock price will follow and hence it'll be superior to most others without taking loads of risk.

So mega trends and where they come from,

is important because we're looking at the drivers of why stock prices do what they do.

Let's move on to the 16 megatrends.

Now, by definition, a megatrend is simply a bunch of changes and trends that coalesce together to create a very long-running decade-plus trend of change, and they're unstoppable.

I also don't respond one way or the other really to where interest rates are going.

Are we going to be in a recession or not?

Geopolitics and all of those sorts of factors that most other investors concern themselves with.

These things are massive and virtually unstoppable.

Now, the 16 you see on the screen in front of you are the 16 investor ready megatrends that we've identified around the globe.

And today we're going to look at just two of them and we're going to look at some of the companies we've invested in within those megatrends.

So the bubble size is simply showing our particular exposure we have to each megatrend in the InSync portfolio.

But why aren't they talked about?

Well, megatrends are boring because they're like glaciers.

It's like watching a glacier move.

Are they powerful?

Absolutely.

But it's hard to see what change they've created until they've receded.

And you can see the massive change and or destruction they've brought upon the world.

Doesn't make great TV.

It certainly doesn't keep up with the 24 hour news cycle.

They're very important to us, however, because they help direct us where to invest in and where importantly, where to avoid.

As I said, they don't care about all the macroeconomics issues.

And they're quite safe to talk about at your next dinner or barbecue because they don't care much about the three things of race, religion, or politics.

Let's look now at two examples.

The title, Pet Humanization, probably describes what we're getting at here.

In the last decade or so, with much more to follow, we've seen a big change in how we relate to our animals.

And if we are in the Western world,

with reasonable incomes and high urbanization.

We see a lot of factors occurring in this megatrend.

Loneliness is probably the Western world's greatest negative affliction.

We're having dislocated families, the rise of single households and all sorts of things that are happening that makes animals more like a family member.

In fact, if you don't say that to an owner now, they're quite offended.

than just a dog or a cat or a horse or whatever.

Now with that, there's a tremendous rise in the toys and trinkets and dog collars and dog bowls and food, even gourmet food for some reason.

And so everything's rising.

Now with that is the rise in medical care.

And you've only had to take an animal to the vet's recently to understand the price of that one.

Zoetis that you see on this slide

is a global pharmaceutical company specialising in veterinarian pharmaceuticals.

Can you see the relationship here?

We've got earnings and stock price trending upwards.

But on the very right hand side with the red line, you'll see what I call the rubber band effect.

And that's attention building when the stock price has gone so far out of line with earnings, it wants to snap back.

Now, that's great when you're about to buy a company like this, because it's basically saying it's a great time to buy.

But go back just a few years and you'll see that the price got away from the earnings because the market gets very exuberant.

And then that rubber band tension builds again and it snaps back again.

So in sync, we don't mind stepping around each side of the earnings so long as the general trend is up and the cause is markets and not the company itself.

Slide is the internet of things.

And all that is about is like the infrastructure behind this massive rise in computing, invading every part and every corner of our lives.

Think of it like the power lines, the pipes, the roads, the distribution centres, the interchanges that enables high-tech technology.

5G is one that we've all heard of because of our phones.

and it's part of this.

But interesting, within two years from today, there'll be almost 42 billion interconnected devices on the globe.

And it's only just beginning.

So whether you're talking about transport or medicine or entertainment or food production, you name it, the internet of things is connecting everything together.

The good news is it's just beginning.

Now, if we take a look at a company you've probably never heard of that is doing very well from the stratospheric growth, it's called KLA Corp. Big global company.

Effectively, they're selling the picks and shovels to the gold mining industry, in this case, the Internet of Things.

So they sell services and widgets that help make all this happen.

Now, they're well ahead of their competitors.

And importantly, with all these quality companies we choose,

They've got to be able to take a dollar that they earned last year and make 20% on it this year and then keep doing 20% or better year after year after year after year.

Now, there's very few companies that can do that.

But look at the trend again between price and earnings.

The red line shows the rubber band effect in play right now.

And we've got a couple of other stocks in this mega trend, Qualcomm and Nvidia.

You may have heard of Nvidia recently because it's risen three times in value in just six months.

We got out about two and a half times because our discipline tells us the price was running away too far in advance of the earnings.

And so it's really important that discipline is left when we are looking at selling, that we don't get carried away.

So what fuels these mega trends?

What's the energy that creates all these changes in the creation of these trends?

There are actually three.

Now, whilst technology has been around since we hammered out the first wheel, since about 2007, a very important thing has happened.

It's the first time in human history that the acceleration of the technology is changing at such a pace now, humans and society can no longer keep up with it.

It's changing faster than we can understand it, debate it and assimilate it.

A great example was actually I just reading yesterday, Google.

They have just put on the latest quantum supercomputer.

There's only a handful in the world.

It can now process information 270 million times faster than its old supercomputer that was around in 2019.

So just in four years, what would have taken that supercomputer decades to do can take minutes now.

So imagine that on the development of cancer drugs, on vaccines, just to name a few.

Second is sustainability.

Sustainability is really related to pollution.

What it's sort of saying is where science and data beyond a reasonable doubt has said, look, for us to continue to thrive, we just can't keep doing it the way that we have.

The world's resources is finite and the ability of the planet to absorb all our activity is also finite.

So we're talking about pollution of the air, the land,

the water, biodiversity degradation, how we produce energy, growth at any cost mentality, all of those things as part of this whole change being driven by the fuel of the need to create sustainability.

Last is demographics, the study of people.

It's the who, what, where, and how of human activity on the planet.

So for us, what does that mean?

That says,

Are today's big consumers going to be the same type of consumers tomorrow in five years time, 10 years time?

Has that changed from who it's been to date?

Where do they live?

What are their values?

How do they live?

All this is going to drive how companies, services and products get made and delivered and what profits and where they come from.

So we are very, very interested

in the world of demographics.

How do we bring this, find the highest quality companies?

These companies, they're like mega super yachts in ocean racing.

They have excellent leadership, amazing crews, high tech boats, and they've got to be positioned in the right part of the ocean.

The mega trends are like massive tailwinds that blow in that part of the ocean, these companies have positioned themselves.

And so together,

They go well beyond everyone else for very long periods of time.

The ability of those companies, as we talked, that's just about that 20% reinvestment.

Now, when mega trends and quality high performing, ultra high performing companies overlap, there's only about 150 on the globe.

Out of the thousands, there's only 150.

Out of that 150, or we do it in sync after we've identified that, is we are selecting around about

the best 30 that we think have the highest probability of exceeding everybody's expectations around the share price without us having to do a lot of buying and selling.

So I'll leave you on this calamity protection.

Most people investing in equity markets don't like it when the unexpected happens and markets plunge.

Now, since 2009, when we started this fund,

we've had five major unexpected crises where it was short, sharp and severe.

Now, what you look at in each of these five is in the blue is how Nsync investors fared in the fund.

The red is showing how the overall market performed during that period.

And the green is simply the difference between the two.

So what we're sort of saying here is that this is not a guarantee.

What it is, it's more like a shock absorber.

It's reducing the severity of the impact and the time you spend in it.

Now that's often important for a lot of people or peace of mind, but especially retirees.

In the first few years, you don't want one of these things happening.

Otherwise you're going to have to live on much less money for much shorter time.

So for those that want the shock absorber protection, it is available.

To leave you on a thought around their analogy with boats, InSync is all about identifying the best and most advanced teams on the best boats in the parts of the ocean that's going to get great big tailwinds to take them well beyond the rest of the fleet.

then have to be patient, stand aside, and let them do their thing.

Thanks, Grant.

The megatrends are very interesting, but I got a question for you.

Could an investor simply just find an ETF of stocks that match a megatrend and invest its way?

Isn't that just easier and cheaper?

Well, if it was easier, it's most certainly easier.

It's nowhere near as effective though.

If it was, we'd all really be doing it ourselves.

The problem is that companies do change and the forces they're involved with and what they do, leadership can change.

Exchange traded funds have much less ability for us to look under the underlying company.

So whilst we are a stockholder, we think of ourselves more as part business owners.

We invest in businesses, not stock prices.

So ETFs don't give you the same utility and assurance that you can adjust it as time passes.

Thank you, Grant.

It's great to see you and take care.

Thank you very much.