Introduction
Gone are the days of ultra formal, unrelatable marketing distributions and so we at BAM have taken the decision to give our newsletter a refresh. The BAMalyst newsletter will seek to provide clients with the investment team’s latest thoughts in a light-hearted and easy to digest, conversational tone. Most importantly, you will receive the newsletter on a fortnightly basis and so you’ll never be more than two weeks away from our reaction to the latest major events if there are any, or more trivial yet relevant thinking such as in this edition.
Who drank all the Guinness?
Our world has a finite amount of a number of commodities – fossil fuels might come to mind, but we now face a new crisis in the form of a shortage of Guinness. The stout drought is due to the drink becoming more popular with Generation Z (people currently aged between 12 and 27, although I hope the Guinness consumed by age is skewed to the upper end of that range).
Diageo, the brewer of Guinness declared the shortage on the 4th of December and in the following week the share price rose by nearly 10%. Why?
Supply-demand imbalances can create powerful investment opportunities. In this instance Diageo could either charge a higher price, improving profit margins whilst potentially stifling demand or brew greater quantities, increasing supply to meet the increasing demand. Fear not, they’ve chosen the latter.
In the majority of developed countries, populations are ageing. This only elevates demand for healthcare services at a time when you could argue demand already dwarfs supply, *insert disappointing NHS statistic*. This presents a clear opportunity for businesses offering some form of healthcare solution. Another consequence of an ageing population is a shrinking workforce, which arguably increases the requirement for technological developments to compensate. No politician will ever say it, but it’s very difficult to accommodate an ageing population without either significant immigration or computers ‘taking’ jobs.
Whilst the core BAM portfolios have exposure to Diageo, due to it being one of the largest companies in the UK, there are greater and arguably more important supply-demand imbalances where we can invest.
Whilst I may be more immediately concerned about my local being unable to stock my preferred beverage, we as a collective, face longer term challenges, where investment into companies offering goods and services in expanding sectors are likely to benefit.
On a different note, we wanted to acknowledge that bond yields, representative of the cost of borrowing, are rising again, particularly in the UK. This appears to be primarily due to political missteps and the outlook not being one of high growth. Another contributing factor may simply be Mr Market being fed too much government debt and suffering with ‘issuance indigestion’. There is the potential that this could lead to faster interest rate cuts than is currently anticipated but given the development is in its infancy, it’s much too early to take a high conviction view. At present this isn’t a major concern but something the team are keeping a keen eye on and potentially a future BAMalyst topic should there be further notable developments.
RISK DISCLOSURE: AS IS THE VERY NATURE OF INVESTING, THERE ARE INHERENT RISKS AND THE VALUE OF YOUR INVESTMENT WILL BOTH RISE AND FALL OVER TIME. PLEASE DO NOT ASSUME THAT PAST PERFORMANCE WILL REPEAT ITSELF AND YOU MUST BE COMFORTABLE IN THE KNOWLEDGE THAT YOU MAY RECEIVE LESS THAN YOU ORIGINALLY INVESTED. CHANGES IN RATES OF EXCHANGE MAY HAVE AN ADVERSE EFFECT ON THE VALUE, PRICE OR INCOME OF AN INVESTMENT. THE OPINIONS STATED ARE THOSE OF BECKETT ASSET MANAGEMENT LTD, WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.