Some companies will benefit from the coming high inflation but investors will have to find them by searching on a stock-by-stock basis rather than looking at entire sectors, the UK equity income manager at Royal London Asset Management has said.
Richard Marwood told FTAdviser that input costs are going to rise, but whether that impacts revenues will vary on a company-by-company basis.
“Thankfully, [alongside rising input costs] a lot of people will also get their top line revenue going up.
“But it depends on the jobs between those if you can control your costs, or put your prices up, then actually this might not be such a bad environment.
There will be businesses that can't do that, he added.
“And that's going to be the job of stock picking really from here, you're going to have to look for businesses that aren't going to get a squeeze on their profit margins.”
Marwood runs the £1bn Royal London UK Dividend Growth fund which has been one of the top performers in the Investment Association's UK All Companies sector over the past three and five years.
He added he would be looking at stock picking on a company-by-company basis, instead of looking at entire sectors.
“If you were to look for broad themes I would suppose generally businesses that have higher margins in the first place are going to be slightly better placed [to deal with inflation].
“Because if you’re making 15 per cent margins, and you get a bit of a squeeze and you go down to a 14 per cent margin, that’s not a disaster. But if your business is only operating on 2 or 3 per cent margins, you haven’t got much profitability to lose.”
Markets are braced for continued inflation, after the Bank of England did not raise interest rates at its last monetary policy committee meeting, despite the rate of inflation increasing above its 2 per cent target each month since May.
However, yesterday (November 23), Jonathan Haskel, a member of the MPC, said that most of the causes of high inflation cannot be controlled by monetary policy.