Biden and beyond: many a micro makes a macro
Comment of the Day

October 29 2020

Commentary by Eoin Treacy

Biden and beyond: many a micro makes a macro

Thanks to Iain Little for this edition of his report. Here is a section on technology

In a zero-interest rate, depression-filled world, growth should be highly valued. Our technology adviser Charles Elliott, whose tech fund is up +45% in 2020, defines a growth stock as one with top line revenue growth exceeding +15% in a zero-interest rate world.

People will continue to “overpay” for +15% growth because – assuming it leads to +20/25% earnings growth – it vaporises a 40x Price Earnings Ratio (PER) down to low double digits in under 5 years. So, the real question for an investor is not “is the company’s PER too high to buy it?” but rather “will the competitive position of this growth company persist for 3-5 years?”

Distributed working, 5G, growing internet diffusion, Internet of Things, augmented reality, electric or hydrogen cell vehicles, ageing populations… these sectors and themes have saved portfolios this year. Such themes are more sustainable change-drivers than either a Biden or a Trump presidency. Since we wrote about the Covid effect of “acceleration” in March, most commentators are running the same tape. “Acceleration” is the watchword.

In our June report we advised against leaving these safer “growth” shores for more cyclical and beaten down “value” sectors like cyclicals, industrials, traditional energy and, the kiss of death, hospitality or airlines. This shift and emphasis won’t last forever.

But it’s got longer to run, at least until central banks achieve their targets of 2% inflation by over-shooting it via a combination of fiscal reflation and Modern Monetary Theory.

Eoin Treacy's view

The pace of technological innovation is accelerating. It is being driven by big data, much greater availability of computing power via the cloud, and soon 5G. Quantum computing is in its infancy but is progressing at an exponential rate. Artificial intelligence remains on a strong growth footing and benefits from the fact that you only need to teach a computer once. After that it is all copy and paste

Click HERE to subscribe to Fuller Treacy Money Back to top