The Pride - Issue 5 - Autumn 2021 - Magazine - Page 16
INVE S T MEN T U P DATE S
SUSTAINABLE INVESTMENT – EQUITIES
Fund managers: Peter Michaelis, Simon Clements, Neil Brown
The Liontrust Sustainable Investment Equity team explain why investing in social media is
problematic for the sustainable investor.
In approaching sustainable investment,
we focus on identifying emerging trends
and long-term themes, as we believe
well-run companies whose products
and operations deliver positive change
can make interesting and compelling
investments. The history books are full
of innovative companies which have
both generated huge profits and driven
positive transformations in people’s lives.
We all know that social media has
been transformational over the past
decade, to the extent that the leading
businesses in this space are now
among the largest and best-known
companies in the world. Many of these
have become hugely profitable but,
given their rapid development across
multiple areas, close scrutiny is required
to ensure they have a net positive
impact on society. Early in 2017, we
assessed Facebook for our funds and
rated it eligible for investment. We then
bought the stock for our global funds in
the first quarter of 2017. It warranted
ongoing investigation, however, given
concerns over monitoring content, data
privacy, and whether it – and all social
networks – are doing enough to combat
social media addiction.
We met with Facebook last year
and received a fairly underwhelming
response to our concerns. Over the
course of 2017, we engaged with
experts in data privacy, content
moderation and fake news, and how
social networks fit in with existing
media regulation. These meetings
helped us come up with a framework
to identify the main issues and how to
judge whether the company response
was suitably robust.
In the second half of the year, we had
another meeting with Facebook and
concluded that while it (and all of the
main listed social networks) is taking
steps to address most of the issues we
identified, this response is inadequate
in light of the risk to its profitability. We
updated how we rate social networks
to be more stringent and subsequently
downgraded and removed Facebook
from our portfolios.
As evident from the Cambridge
Analytica scandal this year, which
saw Facebook CEO Mark Zuckerberg
hauled before Congress, social
networks can very quickly become seen
as multi-nationals mining personal data
for nefarious purposes. This reputational
risk is a major factor for investors –
especially those who hold themselves
out as sustainable.
None of the major social networks
have been willing to discuss tightening
data privacy rules, led by the advent
of GDPR in Europe, or guided on the
kind of impact these rules will have
on their ability to monetise personal
data through targeted advertising and
other avenues.
Until they do, large user content
generated networks will remain a
challenging area for sustainable
investing as regulation tightens to treat
them as publishers responsible for
content as opposed to self-regulated
internet companies.
GLOBAL BONDS
Fund managers: David Roberts, Phil Milburn and Donald Phillips
Liontrust’s Global Fixed Income team ask is this beginning of the end, or the end of the beginning?
After periods of volatility such as that
witnessed in October, the classic
question about economic growth
gets rolled out: is this the end of the
beginning or the beginning of the end?
The truth actually lies somewhere
between these two poles. For the past
few years, government yields have
been low enough that any increase
was interpreted as vindication of the
strength in the economic recovery. It
is now clear that US Treasuries have
reached the stage where increases
in yield do have a meaningful impact
on the generic price of risk. Attention
has switched to the monetary cycle
and whether the Federal Reserve will
overshoot on its tightening path.
16 - T HE P R I DE - Issue 2 Winter 2018
Economic growth is still strong, but
worries about disruptions from trade
wars are increasing. Some leaders in
the Western world have not studied
basic economics and do not realise
that trade is not a zero sum game;
it can have benefits for all, as any
economics student could tell you. Trade
frictions could knock 0.3 to 0.5 per
cent off global growth but are unlikely
to completely derail the cycle.
That said, economic data have been a
little weaker than elevated expectations
of late. The negative turndown over
the last two months is partly due to
expectations having become too high
and also to heightened uncertainties
creating an impediment to investment.
The last few weeks has been a growth
scare and a repricing of risk, as opposed
to an inflation scare.
However, labour markets are tightening
and, as we have posited for a long
time, it is wage inflation that creates
the feedback for general inflation to
accelerate.
Strategically, rates are still some way
from peaking in the US and completely
out of whack in Europe. The time to
buy duration (sensitivity to interest
rates) and credit aggressively has not
come yet, but there are myriad ways
of potentially exploiting this volatility to
the benefit of investors.