Expert: Bertrand Cliquet, Lazard Asset Management Facilitator: Paul Kearney
Headlines:
- The last few years have seen a rare combination of earnings growth/benign inflation/low interest rates
- Today we are facing higher inflation/geo-political issues/interest rate increases and divergent central bank policies
- The current environment makes valuations and earnings growth unsustainable for many companies
- With the equity market remaining expensive stock picking will be a vital component of success
- Alpha, not beta, will be key to investor returns
Context:
UK Inflation Expectations hit a record low of 0.8% in December 2008.
The average from 1999 to 2022 was 2.66%
September 2022 UK Inflation was running at 10.1%
Earnings multiples reached extreme highs in 2020 (measured by CAPE ratio) and remain elevated.
The period of growth stocks outperforming value that has persisted since 2006 appears to have run its course.
This leads to key questions concerning the ability for investors to identify companies with an economic franchise that enables greater predictability of higher earnings through: natural monopoly/cost leadership/network effects/brand or IP/high switching costs.
Key takeaways:
- A follow up will be needed to monitor whether the strategies advocated for navigating this pulse of inflation are effective
