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Growth beyond the financial crisis: assessing sustainability in a volatile world

Markets are notoriously fickle in the short term. But more that ever since mid 2011, they have been reacting to the most immediate macro events of the day. Their focus has swung from one event to another, each with an equally short time horizon.

This has been at the expense of a more longterm analysis of company fundamentals. However, it is our view that key to strong investor performance is the assessment of sustainable growth beyond the immediate crisis. Given today’s ecological stress, finite natural resources, burgeoning debt levels, population ageing and strong shifts in global competitiveness (to name but a few of today’s challenges), companies must continually assess their ability to tap into sustainable end demand.

The debate on the sustainability of corporate growth focuses on issues such as demand, resources and debt. In particular, we find that given the deleveraging process and fiscal discipline tying the hands of much of the developed world, finding sustainable growth will mean exploring the power of emerging market demand.

Leaving aside the quality of management that companies require to be successful, we believe that key themes such as demographics, climate change (and related issues such as energy availability and security) and the “Supercycle” (or the evolving role of the large emerging market economies in the global economy, especially regarding consumer demand, resources and geopolitics) are inseparable from the sustainability debate and must be considered very carefully by companies and investors alike.

One of the key tasks for global investors is to assess the sustainability of earnings growth in companies. This entails evaluating their competitiveness in a global context, and the major forces or trends at work at any point in time. Achieving sustainable growth is a difficult task in any setting – all the more so in today’s delicately balanced global economy and geopolitical system. We are currently witnessing far-reaching structural shifts: economic momentum is continuing to shift to emerging markets while the developed world is attempting to adjust by putting in place structural reform and reduce dependence on debt. In addition, many countries are adjusting to the demographic challenges of an ageing population and shrinking labour force, and natural resources are dwindling.

In the “new normal” environment, will the current prevailing economic model be fit for purpose? One potential change may be in political systems, both in the developed and emerging worlds. Whether authoritarian, socialist or capitalist, political systems will almost certainly evolve over the coming decades in order to adapt to, or reflect, changes in their respective populations. Although stock pickers should remain focused on company fundamentals, understanding the evolution of those economic and social systems, including what pressure points lead to those changes, will be key.

There are currently nine Schroder funds available to invest in via RL360’s Quantum, Paragon and Oracle products.

Important Information

For professional investors and advisers only. This document is not suitable for retail clients. The views and opinions contained herein are those of Virginie Maisonneuve and Katherine Davidson, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

Schroder ISF Global Equity

Investments in equities are subject to market risk and, potentially, to currency exchange rate risk. This fund may use financial derivative instruments as a part of the investment process. This may increase the fund’s volatility by amplifying market events. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder International Selection Fund (ISF). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares.

Virginie Maisonneuve & Katherine Davidson - Schroders, June 2012

Please note that these are the views of Virginie Maisonneuve, Manager of Schroder ISF Global Equity, and Katherine Davidson, and should not be interpreted as the views of RL360.


Virginie Maisonneuve & Katherine Davidson

Schroders - June 2012

Please note that these are the views of Virginie Maisonneuve, Manager of Schroder ISF Global Equity, and Katherine Davidson, and should not be interpreted as the views of RL360.

The full report on ‘Growth beyond the financial crisis: assessing sustainability in a volatile world’ is available now at Schroders Talkingpoint.

360 fund links

There are currently nine Schroder funds available via Oracle, Paragon and Quantum. Schroder funds are also available through our PIMS portfolio bond.