We believe it is probable that the current volatile markets, minimal visibility and low levels of global growth will persist over the medium term. The high volatility and weak growth is driven by global political and economic uncertainty. The predicament is made worse by the benign monetary policy “levers” that world leaders have at their disposal to improve confidence in achieving GDP growth targets. The future is uncertain. Competitive advantages gained by large blue chip companies over many years are being lost over night due to disruptive technologies. Management teams and hierarchal structures of old are being replaced by smaller dynamic teams. Capital is finding its way to new value built systems whereby number of users overshadows the bottom line.
In light of this Asymmetry wilm continue to develop and build ideas around the following themes:
Companies’ barriers to entry or so-called “moats” as Warren Buffet describes them are melting away. Most incumbent businesses are vulnerable to competition and technological disruption. Furthermore, this transformation is happening at an unprecedented pace, and it is accelerating. Power has shifted from companies to consumers, and their expectations have never been higher. Companies can no longer get away with poor product offerings, at least not for long. Today, bad product reviews trump clever marketing. Power has also shifted within companies as individuals or small teams can have significant impact on the company operations and efficiencies.
We think the successful sustainable business models of the future will be those that can combine technical knowledge and business expertise with greater creativity. Most corporate giants today are slow by design and at risk to the age of internet. Asymmetry expects some negative surprises from less nimble companies. Company culture has become a key element of success in today’s corporate environment. Working in smaller teams, fostering synchronicities, synergies and connections amongst business units will win the sustainability race, in our view. The creation of superior products based on unique technical insights will also contribute to sustainability. It is not likely all new technology will be successful. Some new technologies will serve to entrench and grow industry leaders’ market positions and others will be explosive and disruptive to entrenched industry players.
Over the coming months, the Fund will begin to build positions and specifically research ideas to gain exposure to the outcome: that water and service providers to the water industry will benefit as the value and demand for clean potable water increases while resources diminish. Water is important to Asymmetry.
Food is the next most important feature to life on this planet. Asymmetry likes food outcomes because humans need to eat everyday regardless of whether or not the S&P500 is down 50% in a year. Furthermore, the food industry has recently entered a period of great disruption which creates asymmetry. A major contributor to the disruption is caused by the age of information. The consumer is quickly understanding the poor health practices within the food services industry including each level of vertical integration. It is causing significant effects on consumer eating habits. We expect this trend to gain momentum. Human beings’ health and wellness as well as climate change is at the forefront of government and political agendas. Asymmetry suspects these factors will contribute to necessary change in the industry. The recent sugar tax to be implemented in South Africa is an example of such a change in policy.
Soft commodities: Asymmetry is currently analysing a variety of investment opportunities in these markets. Real-life deliveries take place on a seasonal basis to feed country populations. We have found significant amounts of information and pricing arbitrage year in and year out. Furthermore, climate change exacerbates these arbitrage opportunities. These markets provide a good liquidity risk mitigate for our food producer and services positions.
As global political tensions intensify, countries fall into complete war zones while refugees apply ever growing pressure to the developed world. The increase in expenditure on defence and security continues to gain momentum. Asymmetry recognises this expenditure as an opportunity to position our investors with financial protection against greater global uncertainty and increasing conflict. Asymmetry has a number of opportunities targeted for our investors. These opportunities have shown strong resilience in revenue growth during similar periods in the past.
The battle for the control over global energy intensified in 2016. Iran is the latest country to set a cat amongst the pigeons in the ongoing international oil glut sending supply further ahead of global demand. Added to this, the US has spent a large sum of Taxpayers’ money boosting the fracking industry in North Dakota over the past 6-year period for two reasons: (1) to become less dependent on Middle East (ME) energy suppliers and (2) to reduce its cost of energy whilst in the process creating jobs. However, the fracking industry has come to a grinding holt as the ME’s appetite for Petro-dollars to fund security and maintain stability in the region has come at all costs (i.e. low oil prices). There are a variety of asymmetric opportunities developing in this sector.
Despite the current low cost of energy globally, investment continues to make its way toward greener/sustainable energy opportunities as countries battle with climate change policy. This resilient investment despite the bad news for the sector (low dirty energy prices) is positive for the longer term, in our view. For us, this is a trend certainly worth following. Technology is key in green energy with respect to low-cost producers, innovation and disruption.
Asymmetry uses technology as far as possible to increase communication and touch points with its clients. Industrial transport is an industry in which I have spent the majority of my analytical career. The cyclical nature of this industry translates into a continuous stream of asymmetrical opportunities. Couple this with recent changes in technology as well as the entry of 4PL technology players and opportunities are abound. We have been negative on shipping for quite some time and expect the current weak conditions to melt over into 2017. The Fund will only look to invest in shipping again once a significant flushing out of supply has taken place (likely: 2019-2020).
Asymmetry suspects there is a storm brewing in the financial services industry due to reckless lending, over-exposure to certain economic sectors, technology and entrenched positions of slow moving corporate giants. One such contributor, amongst others, to these winds of change is block chain technology. It has the potential to change the face of financial security forever. Asymmetry will stay abreast of such shifts in technology and the potential winners/losers as well as the development of global crypto-currencies.