Ian Cowie gives his outlook for investors this year.
What will 2023 hold for investors? Any financial predictions about this New Year should be preceded by the cautionary admission that few – if any – foresaw 2022’s biggest event, the worst war in Europe since 1945.
More positively, that sad fact serves to illustrate an important fundamental advantage of investment companies in an unpredictable world. They enable us to diminish risk by diversification and to invest internationally; freeing us from being excessively dependent on any single company, country or even the continent in which we happen to be based.
The invasion of Ukraine on 24 February will continue to affect the global economy in 2023 but, without in any way wishing to diminish the enormity of Russia’s war crime, it is an ill wind that blows no good. For example, every government around the globe can now see that energy independence is not just ‘nice to have’ but essential for keeping us warm and in work this winter – and for the foreseeable future.
Europe used to rely heavily on Russian oil and gas, both of which are now subject to international embargoes. So my first prediction for 2023 is that investment in energy independence will increase, creating exciting new opportunities for investment companies and their shareholders.
Ecofin Global Utilities and Infrastructure (stock market ticker: EGL) is my biggest exposure to solar and wind power. Gore Street Energy Storage (GSF) gives this small investor access to industrial scale batteries, essential to balancing inevitable fluctuations in the supply of solar and wind electricity, when the wind won’t blow and the sun don’t shine. US Solar Fund (USF) is self-descriptive.
Less obviously, another investment company, Gulf Investment Fund (GIF), gives me professionally managed exposure to the frontier economies of Qatar and Saudi Arabia, which respectively supply much of the world’s liquefied natural gas (LNG) and oil. Even less obviously, tankers leased by Tufton Oceanic Assets (SHIP) are transporting some of the LNG and oil that replaces fuel no longer flowing from Russia to Europe via pipelines, such as Nord Streams 1 and 2.
Unfortunately, geopolitical and trade tensions are also present in Asia, where China has become the world’s second-largest economy and an increasingly assertive rival to America. So my second prediction for 2023 is that Western companies will continue to transfer production of exports from China toward neighbouring countries such as India and Vietnam, which also have highly motivated and lower-cost workforces.
The technology giant Apple (AAPL) now makes some of its iPhones in both countries, a high profile example of this trend, sometimes dubbed ‘friend-shoring’. India Capital Growth (IGC), JP Morgan Indian (JII) – in which I have been an investor continuously since 1996 – and VinaCapital Vietnam Opportunity (VOF) enable this small shareholder to participate in this global theme.
Closer to home, I predict that another conflict will continue in 2023; the ‘war' against the coronavirus and other threats to human health. Helping to fund medical research is a wonderful way for investors to do well by doing good and I am proud to have been a shareholder in Worldwide Healthcare (WWH) for more than a decade.
International Biotechnology Trust (IBT) is another investment company that gives me professionally managed exposure to a sector where I know next to nothing. But I draw confidence from IBT’s lead fund manager being Dame Kate Bingham, the former UK vaccine taskforce czarina.
My fourth prediction for 2023 relates to what we used to call ‘new technology’. Many of these businesses’ share prices plunged last year but digital communication and commerce remain wired into the world economy.
So I expect to see some recovery in Polar Capital Technology (PCT), another investment company in which I have been a shareholder for more than a decade. Similarly, because shopping online seems here to stay and everything delivered to your door needs to be stored somewhere first, I recently bought shares in the specialist investment company Tritax Eurobox (BOXE).
The latter is doubly out of favour because its warehouses are based in the western countries of a war-torn continent, with the added worry of a retail recession. Here and now, I draw comfort from the fact that I paid 46% less than this investment company’s net asset value (NAV), a handy discount, and its dividends deliver 6.5% income.
Such a healthy yield is not guaranteed but might prove helpful if interest rates continue to rise elsewhere. That raises the important point that investment companies have an unrivalled record of sustaining rising incomes for shareholders, despite several stock market shocks in recent decades.
No fewer than 17 have done so every year for more than two decades. Seven ‘dividend heroes’ have increased shareholders’ income every year for half a century or more.
So, whatever happens in 2023, I predict that a globally diversified portfolio of investment companies will continue to provide shareholders with opportunities to grow our capital and increase our income over the medium to long term. Merry Christmas!
Ian Cowie is a shareholder in all the companies named above as part of a globally diversified portfolio of investment companies and other shares.
