Portfolio Manager, Peter Brooke, shares his latest Perspectives, unpacking his ongoing experience of the UK market and his observation of how reduced supply – based on post-Covid capacity that can’t keep up – continues to drive up inflation.
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Peter Brooke 00:00
Good day. I'm Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 38 of 2022, and week two in London.
Peter Brooke 00:09
It was brilliant to listen to some of the best pharmaceutical businesses in the world, where the main emphasis is on their pipeline of new drugs, all of which improve our capacity to prevent or cure disease. For instance, I listened to BioNTech, who brought us the COVID vaccine, and was delighted to hear that they are investing heavily in malaria. Now, the cost of malaria is one of Africa's big problems, so this would really make a difference to us. GSK are also making good progress on their HIV range, another burden for Africa. One of the biggest areas of investment is oncology or cancer. And this is a big focus of all the companies. And the reason for this is it's a particularly profitable area, but also because it kills us. So, progress here, which appears to be coming through quite quickly, is good news for longevity. One of the more interesting meetings was a company called Exscientia, which is an Oxford-based biotech company, where half of their stock, sorry, half of their staff are tech-based. And they're using AI to develop new molecules, and hence new drugs. Exciting stuff.
Peter Brooke 01:20
However, probably the most interesting meeting was a US-based group, which runs dialysis clinics. In Q2, their volumes were down because they didn't have enough staff to service their clients. The shortage of nurses is so acute, that a nurse can go on a three-month contract in Texas and earn the same as they would in a year. And I think this is the key story of my trip so far. The world economy is running faster than the post-Covid capacity. You have to book for a restaurant in London, and most of them have "help wanted" signs. You can't get flights or baggage handlers. The supply of rental homes is exceptionally low, and as a result, the price is way up. All of this points to higher inflation and higher interest rates. And the market doesn't like this. Hence the big sell-off in the last week as rate expectations ratcheted higher. We have reduced equity exposure in our solutions ahead of this. And as always, the cycle will turn. However, the data in this trip suggests we're not quite there yet.
I hope you enjoyed this perspective. Until next week.