Investing Conference: Investing with Optimism in Dark Times

Scotsman Annual Investing Conference 2022. Photo: Scott Louden

Meeting just two weeks before the first lockdown, the mood had been optimistic with the general understanding that now was a good time to invest.

Fast forward two years to a world still recovering from the Covid-19 pandemic, but also worried about a war, expecting huge energy price hikes, but trying to plan the road to net zero, and the investment landscape has changed dramatically.

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Five experts joined the panel at the Royal Scots Club in Edinburgh on Wednesday to share their experience and insights with a room full of delegates, ranging from first-time investors to seasoned professionals.

The positive vibe created by a group delighted to be back in person after a long hiatus was not entirely dampened by the news the panelists had to share.

Indeed, the first speaker insisted on emphasizing his optimism. Andrew Ness, portfolio manager at Franklin Templeton, presenting for the first time in three dimensions after two years “banished to the attic and the big screen,” spoke about the opportunity that still exists in emerging markets.

“Emerging markets account for 65% of global growth,” he observed, explaining that this could be attributed to three factors.

These were the increased resilience of financial institutions in these markets; their diversification with consumption and technology providing secular engines of growth, and the fact that they move beyond established business models through innovation.

The main driver of this growth was earnings, which contributed 6.4% to total returns on average.

While Ness conceded that the Russian market remains an unknown, the next speaker, David Coombs, was very clear about the future of another contentious issue.

“I have to start this presentation with a trigger warning,” he told the audience, before discussing the merits of investing in fossil fuels.

He spoke about the realities of the energy crisis and the uncomfortable questions that will need to be resolved on the path to net zero.

“Just because it’s renewable energy, don’t think it’s going to be nice, it’s going to be brutal,” he said.

Coombs went on to tell delegates that since the UK is behind on nuclear power and green hydrogen is 20 years away from commercial application, we need to find creative ways to solve the problem.

Jo Freeman-Young, sustainability actuary at EY, echoed the net zero theme in his presentation. She told the conference that following COP26 there has been a chain reaction that markets cannot ignore. Pressure is mounting from regulatory executives, shareholders and customers, which means there is a real risk of reputational damage from greenwashing, and low scores in climate indexes can cause companies to lose out to competitors.

“Climate is a financial and material risk,” she told the audience. “Companies must disclose transition pathways by 2023.”

Contrary to some of Coomb’s earlier points, Freeman-Young pointed out that all countries are committed to phasing out coal, and she therefore advises financial services firms to examine their exposure to coal and other fossil fuels and how these parts of investment portfolios can transition.

“Clients need to decarbonize quickly and deeply, prioritizing the most carbon-intensive sectors,” she said.

“Supporting and influencing customers for rapid and deep decarbonization, prioritizing the most carbon-intensive sectors. Set specific, time-bound expectations for customers or companies around decarbonization, and take action when they’re not met. Provide decarbonization support and advice to clients or businesses, and increase the availability of capital – or reduce the cost of capital – for climate solutions. »

Turning to property investing, Mark Brennan, partner at Foresight Group UK, said property was in transition as an asset class.

Due to regulatory changes and fund closures, traders are wondering how to allocate assets in their portfolios and whether it is worth the structural risks.

“It’s a very liquid market, with over $2 trillion of global market capitalization in real estate investment trusts,” he said.

Brennan went on to point out that the return on the portfolio is 4% and this is a source of inflation-linked income. However, he stressed the importance of going global, including investing in US real estate investment trusts.

The last speaker of the day introduced a much riskier asset class: early-stage companies.

Speaking as an angel investor and managing director of Investing Women, Evelyn Simpson captured the imagination of many in the room, judging by the line of people waiting to speak to her afterwards.

She spoke about the deplorable underrepresentation of women-led businesses and their even worse access to capital.

“We were founded by Jackie Waring in 2016 and we just had our first exit – from TC Biopharm, which floated on the Nasdaq. They were the first Scottish company to do this,” she said.

The company, which floated with a valuation of $119.25 million and raised an additional $17.5 million through the IPO, was co-founded by its chief executive, Angela Scott, and Dr Michael Leek. , who is now executive chairman. TC Biopharm was also named one of the top five women-led businesses in the UK by JP Morgan last year.

Thanks to Investing Women in the lead, some 13% of Scottish angel investors are now women, up from just 2% in 2015.

The benefits of angel investing include empowerment, inclusion and impact, although at seven years this is a longer average investment period than other forms.

Simpson told the conference that many people got into angel investing after leaving their own businesses with a desire to give something back to start-ups.

“We have a strong philosophy of using our skills and experience to support early-stage founders,” she said.

The panel discussion that concluded the event sparked lively discussion, with strong audience participation and – being live – no one was accidentally speaking on mute.

The questions focused on trying to predict the outcome of the Ukraine crisis, whether or not it would be wise to invest in cryptocurrencies, and whether now is the right time to invest.

Coombs said, “In my experience, the best time to invest is when you’re feeling the most uncomfortable – and my God, it’s uncomfortable right now.”

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