The end of 2018 is a time for sombre reflection as we honour the centenary of the end of the Great War. Yet, for those of us focusing on financial markets, it is not the only sobering anniversary. Ten years ago we endured the Global Financial Crisis, when the entire financial system came to the brink of collapse. It is also twenty years since the Asian Crisis when banks and investors bore the brunt of a ferocious asset price decline. The biggest winner from these recent financial upheavals, and perhaps from the last hundred years of global geopolitical evolution, has been China. At the time of the Great War, China’s GDP was half the size of the (not yet dominant) USA and just over a quarter of the size of Western Europe; today, these three regions are almost on par from a GDP standpoint. The country’s command-based economy, a far cry from the domestically oriented economy of the past, has grabbed the initiative and become a global powerhouse.
Yet GDP growth, of course, does not equate to stock market performance. In my last letter, we celebrated an ebullient start to the year for emerging markets after an equally positive 2017. In just a few months, all the gains of the prior 18 months have been eliminated in a cruel reversal which has left emerging markets at their cheapest relative to the developed world for a decade. Much of the pain has been sustained by weaker currencies as the dollar resumed its inexorable rise. The overall setback has left students of the markets deeply frustrated; we had hoped that the pain of the post-2009 era was over. The question is: where do we go from here? In my recent Bloomberg appearances, I have been presaging a significant setback in artificially inflated US and European equity indices. The strength of the USD and the resilience of the Euro are not going to help these geographies, especially with China actively managing down its currency. The impact of Brexit has also been underestimated; there are now almost daily announcements of businesses shifting their operations to the continent. Strong exposure to the growth markets in Asia, Latin America and elsewhere should prove increasingly critical to outcomes.
Looking beyond stock markets, Brexit is set to have a significant impact on many other realms, not least British science and innovation. British Universities have historically relied on the flow of funding and talent from the EU, both of which already appear to be slowing down. We seek to support this ecosystem through the British Innovation Fund, which has already committed about 20 percent of its capital to incubators and accelerators associated with British Universities. We anticipate recycling our capital quite aggressively, raising additional funding by issuing new units and, ultimately, listing the vehicle once it has a value of over 100 million GBP.
Milltrust’s raison d’être has been to identify global secular themes that we will enable us to successfully capture alpha over the long term for our investor base. For us, the clear front-runner – alongside the Emerging Market growth story – is new technology. Technological advances lie at the core of everything we do: the science that is driving better yields in our farmland investments, the innovations that are being fostered by the likes of the British Innovation Fund and CerraCap Ventures, and the companies in our emerging market portfolios. Technology will radically enhance the way we manage the earth’s assets, with an increasing focus on sustainability and responsibility. It will improve the quality of life as well as the length of life for the average man. It will lead to the democratisation of investing. It will empower people to take charge of their destiny through education and, paradoxically in an era dominated by untruths and innuendo, it will help them to source knowledge and truth.
We don’t expect to be judged on short-term successes or failures but on our long-term ability to invest across markets and assets classes that will, over the coming decade, change immeasurably, as new industries establish themselves and new technologies change the way we live and work. There is much to look forward to in these exciting times.
Founder and Chief Executive