At the start of 2022, government bond yields moved higher as monetary policies in developed markets started to tighten to address inflationary pressures. The US Federal Reserve said it would tighten its policy “methodically” and start “to reduce the balance sheet at a rapid pace“.
These comments added fuel to a bond rout that had already driven Treasuries to the worst losses in decades this year, while Russia’s invasion of Ukraine and the scale of the resulting sanctions and increases in energy costs, has the potential to derail the emerging economic recovery as the world exits from Covid-19 restrictions.
Against this volatile backdrop and the dwindling appeal of bonds, we are looking to alternatives, namely renewables, asset financing and music streaming, as potential sources of return.
Renewables
On the renewables side, battery storage companies that help with the transition to renewable power, have seen strong upgrades in revenue generation and can gain additional revenues from providing capacity availability to the grid.
Furthermore, renewable energy companies in general have contributed strongly in the high-power price environment following Russia’s invasion of Ukraine.
Power prices remain elevated, and we expect long-term power price assumptions will have to rise as Europe tries to reduce its power dependency away from Russia. This should benefit many of the renewable companies’ valuations.
Asset financing
Elsewhere, we like the asset financing sphere where ship and aircraft leasing companies have benefited from escalating transport costs and a recovery in travel from the pandemic.
The costs to hire a ship for a day are increasing due to supply constraints, exacerbated by Russian ships not being able to port in western countries following Russia’s invasion of Ukraine.
There is also a lack of certain types of ships being built over the last decade, and there is a shortage of shipping capacity, particularly in the smaller and mid-size ships that transport cargo to smaller ports that don’t have the ability for large vessels to dock.
Our holdings in aviation are benefitting as airlines get the Airbus A380s back off the ground and issue positive commentary about continuing to use the aircraft in the long term.
These types of assets do not have inflation-linked revenues like renewables or infrastructure, but in many cases their secondary market values are rising on the back of higher commodities, energy, and labour costs. In addition, companies are considering the overall costs of running older assets longer versus replacing them with new ships or aircraft.
Music streaming
We also like music streaming for its investment potential. While the Covid-19 pandemic largely decimated the live music and entertainment scene, recorded music revenues hit an estimated US$12bn in 2020, with streaming accounting for a reported 83%.
Streaming services can, however, be deemed controversial when considering the top 1% of artists account for 80% of all streams, according to a UK Intellectual Property Office report. Other data suggests some artists can receive as little as 2% of the royalties from streaming.
But we are optimistic that record companies, streaming platforms and recording artists can reach a more equitable agreement over royalties and ownership. For one, the UK government appears to have concluded there should be a fairer split of streaming royalties.
The shift towards a subscription-based streaming model has transformed the economics of the music industry, enhancing the visibility of revenues and allowing for significant margin expansion through lower distribution costs and operating leverage, while gaming, social media, and emerging-market growth, increase addressable markets.
Indeed, we believe people paying for music via streaming platforms represents a significant growth opportunity, particularly among audiences in emerging markets such as China, India, Africa, and South America.
Another strength of investment in music royalties is that it is relatively uncorrelated with the economic cycle. The near-universal appeal of music and its importance throughout our lives also gives its commercial strength real longevity.
Looking ahead
Geopolitical tensions could continue to cast a cloud over financial markets in the short term, with the threat of military escalations creating an uncertain investment backdrop, but also resulting in rising interest rates on the back of higher inflation.
This suggests a more attractive backdrop for bond investing – at least in nominal terms – but given the current uncertainty around growing levels of inflation, we continue to favour real assets. As ever, we remain focused on our thematic and fundamental stock-selection approach, an approach we believe will serve the strategy well over the longer term.
Paul Flood is portfolio manager of the BNY Mellon Multi-Asset Income and BNY Mellon Multi-Asset Diversified Return funds.
In his latest article for IFA Magazine, ESG Accord’s Lee Coates OBE outlines what good looks like when it comes to an effective compliance framework
Retail investors withdrew £7.1 billion from investment funds in the first quarter, according to data released by the Investment Association today Bond funds saw £6
Charles Stanley announces the launch of OneStep a new solution for UK adults who want expert financial guidance that is easy, accessible, and affordable. Key
A new tech watchdog will be given the power to impose multibillion-pound fines on major firms such as Google and Facebook if they breach rules
Calvert Research and Management (Calvert), a subsidiary of Morgan Stanley Investment Management, today announced the European launch of a suite of responsible investing strategies focused
81% of businesses have adopted either hybrid or remote work models since the start of the pandemic 78% view hybrid/remote work as having a positive
Mental Health is a subject very close to the heart of Michelle Hoskin – as you’ll hear first hand when you listen to this powerful
In this episode of Financial Insight Thembeka Stemela Dagbo, Lead Fund Manager of M&G‘s Diversity and Inclusion Fund, talks about diversity and inclusion in an
In this episode of Financial Insight we spoke to Alex Araujo from M&G about the role infrastructure plays in the green transition and how M&G’s
In this episode we spoke to Randeep Somel, the Fund Manager of M&G‘s Climate Solutions Fund, about the Green Energy transition, and the importance of green
Parminder Basran, founder and CEO of VGC Partners, talks to us about his new Series-A EIS Fund and the gap in the market it is
Fred Soneya, Co-Founder of The Haatch Group discusses the team’s entrepreneurial experience and the exciting new Follow-On EIS Fund. As tax year-end beckons, advisers’ attention
Alistair Marsden, Director of NOVA Growth Capital discusses the group’s approach to investing in Start-Ups through SEIS. As tax year-end beckons, advisers attention naturally turns
In this latest Podcast, Maria Municchi, Fund Manager at M&G, discusses the influence COP26 has had on the investment industry, the just transition and the strongest
Our latest podcast is now! Find out more about the Agri-tech revolution in this insightful podcast with Fuel Ventures founder Paul Rous. Paul’s new EIS
In this podcast episode, Quilter talk to three advisers about their businesses and their journeys to achieving success. Quilter delve into the ever-changing world of
IFA Magazine – for today’s discerning financial and investment professional.
Published ten times a year, IFA Magazine has been winning a keen and enthusiastic following among Britain’s premier financial advisers, planners and paraplanners.
© 2022 All rights reserved to IFA Magazine | Website by: Nivo Digital | Terms and Conditions
Keep updated on the most important financial events
Make sure you are an informed
wealth professional..
Adblock Blocker
We have detected that you are using
adblocking plugin in your browser.
We are using cookies to give you the best experience on our website.
You can find out more about which cookies we are using or switch them off in .
This policy explains how IFA Magazine collects, stores, uses and shares personal information (including but not limited to information from which you can be personally identified such as your name, address, job title, company, email address, or telephone number) and information about your visits to the network, including the pages you view, the links you click and other actions taken in connection with www.ifamagazine.com, www.gbinvestments.co.uk , www.robopromedia.com, www.mvpromedia.com
IFA Magazine Publications Limited may update this Policy at any time. It is your responsibility to check for updates to this Policy, as your continued use of the website denotes an acceptance of this Policy. Unless stated otherwise, IFA Magazine Publications Limited’s current Policy applies to all information that IFA Magazine Publications Limited has about you and your account.
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.
More information about our Cookie Policy
