FRANCISCO BIDO: Hello everyone, this is Francisco Bido, lead portfolio manager for all the Integrated Alpha strategies.
Inflation is back in the news.
Lots of opinions circulating on this topic and I’d like to share mine.
I want to make two points about inflation today.
Point number one: Equities, in general, do well historically in inflationary environments. If inflation is real and not transitory, equities are likely a good investment versus say fixed income.
Second point: Our momentum-based approach to equity selection results in a portfolio that is very well designed to outperform in inflationary environments. And that’s basically by Charter, and that’s because we focus on companies that acquire price momentum because they demonstrate accelerating earnings and revenues and that leads us to focus on basically three main kinds of companies.
One: Are the companies that have pricing power something a company like Starbucks?
You know, the price of coffee goes up and I’m not going to give up my cup of coffee. You might, I’m not, but those are companies that generally have a solid customer base and they can thicken up the prices a little bit without losing clientele.
Number two is companies that are somewhat commoditized, like a construction company.
For example, BLDR, Builders First Source, and that’s a company that faces a lot of competition but on the other hand has a long, long, long waiting list of customers.
And number three, the third kind of company that we are led to focus on is the innovators. And those are the Apple computers of the world, the AMD’s, they tend to be tech companies, but not necessarily, they could very well be a biotech, even a consumer staples, something like a Campbell soup who has a new might have a new line of organic products and it’s selling very well and so on, so they can be innovators as well.
And they have been in the portfolio for that reason in the past.
Anyway, to conclude, if you’re worried about inflation, my opinion is:
A: Inflation is not a good reason to trim exposure to equities.
And B: Your equity exposures can benefit from my concentration of stocks with revenue and earnings momentum.
I am Francisco Bido.
Thank you for listening.