Marriott Investment Managers

After a great start to the year international equity markets are coming under increasing pressure.  As an unintended consequence of massive fiscal and monetary stimulus, and the rapid reopening of economies, global supply chains are currently struggling to keep up with a surge in demand.  This is placing upward pressure on prices, and holding back the global economic recovery, just when pandemic relief measures are coming to an end.  As a result, the euphoria of economies reopening has given way to concerns around stagflation (a situation in which inflation rates are high, and economic growth is low).  

The risk of stagflation presents a significant dilemma for economic policy makers, as actions intended to lower inflation may exacerbate the slow-down in economic activity. Over the past few months, economic data has suggested that the risk of stagflation is increasing. Central banks hope, therefore, that inflation is transitory, so they do not have to react by raising interest rates. 

At Marriott, we continue to agree that inflation will be transitory, albeit with a longer transition than was originally predicted by many market commentators. It is well known that supply chain bottlenecks, base effects, rising energy prices, shipping delays and other costs associated with the reopening of economies continue to have an impact on global inflation statistics.  However, we also need to recognise that some inflationary pressures are stickier than others, such as the shortage of long-distance truck drivers in the UK which is currently putting upward pressure on wages. These additional costs are flowing through to the final cost of transporting goods, and although the shortages will dissipate over time, they will not disappear overnight.

Our key focus remains to identify companies that will prosper in the long-term but can effectively deal with the shorter-term inflationary pressures. We believe the companies we hold in our international equity portfolios are well-suited to current economic conditions due to our rigorous security filtering process.  This process ensures a well-diversified selection of stocks with pricing power and resilience – two critical attributes for companies to successfully navigate stagflation headwinds.

Take Procter & Gamble, for example, a company held in our international equity portfolios, which has an excellent track record of growing dividends even through market and economic turmoil. It has increased dividends 65 years in a row, including a 10% increase earlier this year. 

Aside from an excellent track record, the company has a strong balance sheet, is diversified across countries and product lines, and holds market-leading positions resulting in powerful brand loyalty and pricing power. Last year, Procter & Gamble was able to grow its organic revenue and core earnings per share by 6% and 11% respectively and is pushing through price increases for key product lines in the 2021 calendar year.

At Marriott, we believe there are a range of companies that are well-suited to the long term and which can effectively deal with short-term inflationary pressures. Companies of this nature tend to be less volatile and more resilient, meaning that outcomes for investors are more predictable. Our international equity portfolios contain such companies.

These portfolios can be accessed via:

• Marriott’s offshore share portfolio (International Investment Portfolio)
• Marriott’s international unit trusts (Using your annual individual offshore allowance of R11 million)
• Marriott’s local feeder funds which invest directly into our international unit trust funds (Rand-denominated)