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The four major themes running through Sarasin's portfolios

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by Annabelle Williams on Nov 12, 2012 at 14:23

From scarce electricity, growth in refrigeration and data obesity, Sarasin lays out the ways it hopes to benefit from an increasingly globalised world.  

Refrigerators in emerging markets

The last few years have seen a catalogue of Western brands seeking to make inroads into emerging markets, only to come up against significant hurdles such as lack of purchasing power and brand recognition abroad.

Coca-Cola is one company making a real effort to surmount the main obstacle to its growth in Asia: that nobody wants to drink unrefrigerated Coke.

Sarasin head of thematic policy Christopher Lindsay says the drinks manufacturer has invested heavily in deploying refrigeration in hot countries, and people will be more attracted to the product served cold.

‘This theme is about the idea that Coca-Cola will come into the parts of the world where it has never been before,’ he said.

‘In Indonesia, you are not going to drink Coca-Cola if it has been sitting in the sun all day, but put it in a refrigerator and you will.

‘So Coca-Cola has put in 27,000 fridges across Indonesia and is waiting until there is a bit more wealth and people will want to buy them. People will change their eating habits because they have fridges.’

Security of electricity supply

While people in the West could scarcely imagine life without the internet and have adopted hand-held devices as near-constant companions, few of us consider the importance of the electricity necessary to keep all this technology up and running.

Sarasin’s head of UK equities Rohini Rathour has invested in the owner of the UK’s most efficient coal-fired generator in a bid to tap an increasing need for baseload electricity.

‘The thing that we take most for granted is the uninterrupted supply of energy,’ she said. ‘We have seen an explosion in broadband traffic driven by single definition, high definition and now Tivo technology, all adding to electricity demand. My question is do we have the infrastructure to cope with a sudden growth in demand?’

Drax currently supplies 7% of the UK’s electricity and is on course to become the primary biomass generator from 2013, helping meet government targets for sustainable energy.

‘At a time when new sources of electricity are expensive and high risk, Drax presents a strategic and increasingly green solution to the UK’s electricity supply problem,’ Rathour added.

Home improvements

With the hunt for income getting harder, equity income investment has boomed – and companies returning cash to shareholders have generally outperformed.

Mark Whitehead, Sarasin’s head of global equity income, has noticed another trend gathering pace. Homeowners are looking to add value to their property as a store of income and the US leader in the home improvement market, Home Depot, is set to benefit.

‘We think the long-term thematic trend to look at is the fact that real asset growth is something we want to invest in over the long term and basically, holding yields low will cause us to want to use our home as a store of value,’ Whitehead explained.

He has owned the stock for the last 18 months and says the company has undergone significant restructuring to boost its margins by streamlining the supply chain and cutting costs internally.

‘With little new store growth in the US, Home Depot is a huge cash cow and all net income is being returned to shareholders via a combination of dividends and share buybacks,’ Whitehead added.

Data obesity

Growing reliance on data on demand, particularly among the younger population, has led to a massive growth in smartphones, internet-enabled televisions and high speed broadband.

Rohini Rathour highlights Virgin Media as a company with a particularly diversified business model, which will benefit from this trend.

‘It’s 100% UK focused and has a compelling investment story,’ she said. ‘What is really interesting is all the capex that went into building this business has already been spent – they don’t need to spend any more. It has also bought back 25% of its market cap over the last two years. That shows it is an interesting investment case.’

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