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BLOG: Turning negative scenarios into positive investments

Written by: Darius McDermott
The start of this year has, like last year, been dominated by geopolitical concern - whether it be Brexit, the ongoing US-China trade dispute or worries Europe is flirting with recession.

Uncertainty over the outcome of these issues has weighed on investor sentiment and the uncertainty has resulted in volatility. But this isn’t always a bad thing – for all the uncertainty these problems create, they also bring opportunities for investors who take a different perspective on the market.

Below we look at three investment trusts which are looking to take advantage of uncertainties across different sectors in the market – effectively turning a negative into a positive.

Baillie Gifford Japan Trust

Acute labour shortages

One of Japan’s most pressing issues is a declining labour force, as its working age population continues to shrink: there are currently 160 jobs for 100 applicants. One third of its construction work-force is over the age of 55 and many all-night restaurants are closing because they cannot find enough staff. This means companies are now battling for talent and, after many years, wages are finally starting to rise. Another consequence is an increasing demand for outsourcing services. One company which has seen the benefited from this is Outsourcing Inc, which is held by the Baillie Gifford Japan Trust, managed by Matthew Brett.  New legislation from the Japanese government requires companies hiring staff on temporary contracts for more than five years to become permanent members of staff. Outsourcing’s business model hires workers from major corporations as regular employees and gives them the benefits of being a permanent member of staff – before it leases them back to the company they came from. The arrangement removes expensive staff overheads for clients.

Jupiter European Opportunities Trust

Overuse of antibiotics

Managed by Alexander Darwall since its launch in 2000, this trust has around 20% *of its underlying assets invest in healthcare companies. Alexander believes industry disruption and regulation in the sector will see a number of winners emerge, and cites clinical diagnostics equipment companies as an example. He believes increasing concerns over the rise of antibiotic resistance means diagnostics companies are benefiting from the drive from health authorities around the world to stem the overuse of broad-spectrum antibiotics. New syndromic diagnostic technologies determine whether patients have an infectious disease in record time, enabling treatment to begin sooner and freeing up hospital beds where they are not needed. In addition, accurate diagnostics also have a role to play in speeding up the search for new antibiotics, as the technology can accurately isolate the disease in trial patients.

Schroder Oriental Income Trust

US-China trade wars

Manager Matthew Dobbs says he has made very few changes to his portfolio’s positioning based on pure  tariff considerations. This is mainly because he has never been keen on low-margin labour cost arbitrage business models which will be most disrupted by the ongoing US-China trade war. Matthew, who has run the Schroder Oriental Income trust since launch in 2005, has actually been finding a few opportunities in Asian exporters. He says: “We like companies that deliver a high level of added value with their products and that have complicated supply chains. This makes it is very difficult to source alternatives for their products elsewhere.” Matthew says investment opportunities are also showing up among a number of domestically-focused growth stocks in sectors like leisure, healthcare, internet services and education.

Darius McDermott is managing director of Chelsea Financial Services 


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