Two summarised reports from two incredibly well-known managers today, both with interesting and challenging views for investors. The first is from Bill Ackman over at Pershing Square, who I rate highly.
Here is the Numis summary of his views on inflation in the US.
“Growth in demand for labour, particularly from the hospitality sector that has surged since the economy began reopening following covid lockdowns, which will inevitably lead to some wage inflation, albeit labour supply is likely to increase as employment benefits are eased later this year. Chipotle recently announced an increase in its average hourly wage to $15 and the manager suggested that businesses with pricing power in their products will be able to mitigate this wage inflation by passing it on to the consumer in the form of higher prices. With inflation emerging across various assets from commodities to housing, the manager believes that the Federal Reserve will be forced to change its course and raise interest rates and he therefore suggests it will be important not to own businesses where is going to be impacted by rising rates, such as high growth technology companies.”
I still think that the concerns around inflation needs to be put into perspective – despite the big jump in numbers this week – but I also think we are edging ever closer towards a 2021 Taper Tantrum.
Next up we have Scottish Mortgage and James Anderson. On a side note, in my Citywire column this week I observe that over the last 25 years, SMT has provided some of the very best returns for investors. Hats off to the BG team and Anderson.
As he edges towards the door Anderson observes, courtesy of the Numis summary, that “the world of conventional investment management is irretrievably broken” and sets out some of his grievances. He also reflects that “my greatest failing has been to be insufficiently radical” and covers subjects including long-term thinking, uncertainty and investing in a period of deep change. James highlights the factors that are most likely to occur in great investments including “open-ended growth opportunities that they should work hard never to define or time, that it has initial leadership that thinks like a founder (and almost always is one) and that has a distinctive philosophy of business – almost always from independently thought through first principles.”
Where I think Anderson is absolutely correct is on the need to pay attention to profound structural changes, involving both globalisation and technological disruption, plus of course the decarbonisation transition.
Lastly, one final fund manager observation to throw into the mix – this time from Asia but on a topic close to the heart of most developed tech investors. Semiconductors.
Greg Fisher, the value-oriented fund manager at Samarang – who’s had a tough year it has to be said – offers up the chart below for the main chip sector industry benchmark, the Philadelphia Semiconductor Sector Index.
“We are told, and it is the consensus that the present chip shortage will last for some time to come, that demand growth is truly secular and appetite will only grow, perhaps even faster than in recent years. In my view, this overlooks the reality that this industry is expanding massively in terms of planned capacity, with $100bns of capex investment in new plant all over the world.
The contrast is with industrial metals, where a combination of decade-long shareholder pressure to return capital and the inherent difficulty and time lags involved in boosting production (not to mention environmental issues) work against new supply, making the rallies in these commodities we have seen recently much more sustainable. It is too early to try to make a judgement as to whether commodity price inflation will feed through to higher prices generally, as markets are beginning to worry about, but it is possible to see a pricking of the chip bubble over the next 6-12 months given the exponential market moves and investor positioning.”
For the record, I have been continuously taking profits on my Nvidia and AMD shares. Also in terms of the fund managers mentioned, I invest in all three: through Scottish Mortgage in my SIPP, Pershing Square (and Tontine) in my ISA, and Samarang Asian Prosperity Fund, also in my SIPP.