James Swanson, the chief investment strategist at MFS Institutional Advisors, who has been with the firm for 33 years, is, like all of us of a certain age, contemplating retirement. His reflections on the world of investments show how, as the saying goes: the more things change, the more they stay the same.
In his most recent client note, published last week , Swanson says: “Looking back over my many years in the investment management industry, the importance of a handful of themes jumps out at me.
- First, technology has been, and always will be, an incredible driver of change.
- Next, understanding the human condition is as important as any investment analysis.
- And while market cycles today tend to be longer than they have been historically, cycles are not yet a thing of the past.
- Additionally, free cash flow and dividends are critical elements in sustained investment success.
- Finally, at this stage of the market cycle, investors may want to focus on the margin of safety rather than concentrating purely on profit margins.”
On the big macro themes, Swanson says globalisation was a big driver of profit margin expansion for much of this business cycle, but it appears that it may have peaked for the time being.
Brexit and growing trade barriers are manifestations of that peak and the more constrained movement of people and products is likely to crimp profit margins as we move forward. Rising interest rates will pose challenges as well, affecting return on equity and lowering free cash flow yield.
Swanson is also a fixed income portfolio manager and lead manager on two of MFS’s multi-asset strategies. He offers his insights and perspective on the markets and the economy to MFS clients around the world through in-person meetings, his ‘Strategist’s Corner’ column and MFS’ ‘Insights’ blog. He is a frequent commentator on the markets, appearing on television and in print and online media. He is also a CFA.