MARKET REVIEW
Although the US economy has gained momentum, the recoveries in the Eurozone and Japan look fragile. The economies of Germany, France and Italy contracted in the second quarter, underlining the vulnerability of Europe to weak inflation and a deepening crisis in Ukraine. Japan suffered its worst economic contraction since the earthquake and tsunami more than three years ago after an increase in VAT triggered a sharp fall in consumer spending, casting doubt on Abenomics. Nonetheless, global equity markets climbed higher with the US S&P 500 index breaking the 2,000 level. Investors hope the European Central Bank and Bank of Japan will undertake further stimulus.
THEMATIC INSIGHT
The Golden Age team tries to stay abreast of new exciting age-related technologies. Google X, Google’s research arm, is working on a number of such projects, often referred to as “moonshots”, including a driverless car, a smart contact lens, a Baseline Study of the human body, Google Glass, and Calico. These projects are worth watching as they could be revolutionary and warrant an investment.
The goal of Calico, a biotech start-up headed by Arthur Levinson, former Chairman of Genentech, is “to develop life-enhancing therapies for people with age-related diseases”. With the backing of Google and AbbVie, Calico is building a $1.5 billion ageing R&D centre to focus on drug discovery and early drug development for diseases like neurodegeneration and cancer.
Novartis’ Alcon recently in-licensed Google’s smart lens technology. For diabetics, a contact lens with miniaturised electronics could measure the body’s glucose levels in a continuous, minimally invasive way. This sounds preferable to a fingerstick. Smart lenses may also be able to correct vision.
The other “moonshots” are equally exciting. The Baseline Study capitalises on human genome sequencing, costs having fallen below $1,000 in trying to put together a full picture of what a healthy human being should be.
QUARTERLY OUTLOOK
We remain reasonably constructive on the outlook for the US equity market. Although US stocks have done well, valuations are not overly pricey and improving corporate profits, heightened M&A activity and a recovering economy provide support. As regards Europe, we are more cautious given weaker fundamentals but recognise that if the ECB were to pursue quantitative easing, then equity markets could climb higher. With respect to Japan, we hope that a lower corporate tax rate, an increase in equity weighting by the Government Pension Investment Fund, and additional measures by the Bank of Japan will drive the Nikkei higher by year end but remain sceptical that Abenomics will ultimately deliver sufficient structural reform.
On a portfolio level, we believe we are sitting on some pent-up performance that should help us deliver outperformance over the next few months. Several holdings that have reported better-than- expected results have not appreciated quite as much as they deserve in our opinion.
Sincerely,
LOF – Golden Age team
