Peter Rutter, Royal London Asset Management’s Head of Equities, explains how the Corporate Life Cycle Concept is helping his team cope with the global economic outlook
The continuing uncertainties in the global economy mean that style bifurcation is likely to continue to be a theme in equity markets, argues Peter Rutter, RLAM's Head of Equities, "with quite significant style rotations because of the wide range of possible real-world outcomes."
"So, I think it's very important for investors to know where their style risks are in their investment portfolio because that's likely to be quite a key determinant of relative performance and absolute performance," he says. Investors who don't want to make a bet on a particular macro or style outcome might need to consider a relatively style neutral approach, he argues, whether by making sure portfolios contain the right mix of styles, or by investing in relatively style-neutral strategies.
Rutter argues that RLAM's Global Equities team has key strengths in this area, including a framework that allows managers to take better account of the stage in the Corporate Life Cycle that a company has reached.
"Our Corporate Life Cycle framework allows us to map every single company in the investment universe into one of five categories, depending on where the company is in a Corporate Life Cycle running from Acceleration (innovation) and Compounding (growth) to Slowing, Mature and Turnaround following distress."
In RLAM portfolios where the Life Cycle framework is applied, "we can triple diversify, that is, not just by sector and region but also by Life Cycle exposure, to allow us to build a relatively Life Cycle and style neutral portfolio with the potential to outperform when growth is outperforming, when there is a cyclical crash, and in recoveries of various shapes."
Life Cycle neutrality is potentially useful not only because crises are unpredictable, he says, but because the way in which each crisis disrupts or benefits a Life Cycle segment can also surprise: "In the Covid-19 crisis, a lot of the Accelerators were disruptive technology companies and performed well because of the swing towards remote working and digitisation - counter to how you might traditionally have expected that part of the Life Cycle to perform in a downturn."
Click here to learn more about the outlook of the RLAM Global Equities team and how it informs their investing strategies
This article was funded by Royal London Asset Management.
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