How to Invest in a Disrupted Economy, Per Sage Munro

The economic landscape has been upended in recent years—owing to higher inflation and interest rates, ballooning debt, geopolitical tensions and a host of other factors.

What is the best way for institutional investors to deal with such a changed world? The answer, according to Euan Munro, CEO of Newton Investment Management, is a multi-strategy approach capable of shifting as the ground does. This covers an array of methods, such as income-centered (bonds and dividend stocks) and absolute return (involving short selling, derivatives, leverage and more).

Many of the old tried-and-true investing methods are or soon will be in decline, he asserted. For instance, the longstanding investor preference for passive, index-based investments will increasingly be seen as mistaken, Munro said in an interview. “Indexes are backward-looking,” which is a problem for future planning, he argued.

Examples: In the 1990s, tech and telecom were heavily represented in the indexes, a weakness when the 2000 dotcom bust occurred. And in the aughts, banks and other financial companies were the big thing, then came the 2008 financial crisis.

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Up ahead, economic growth in developed nations likely will slow, he wrote in a research paper, issued in April, “How Can We Unlock Opportunity in a New Market Regime?” Reasons included greater allocation of these nations’ financial resources to “‘greening’ [the] energy and transportation sectors, and a lower percentage linked to consumption.”

Prominent new emerging trends, wrote Munro, whose firm is a unit of BNY Mellon Investment Management, are increased immigration, shifting trading patterns and smaller working-age populations. These all are “raising the bar on inflation,” he noted. London-based Newton, founded in 1978, now has $110 billion in assets under management, and offices in New York, Boston, San Francisco and Tokyo. Munro joined as CEO in 2021, after holding top roles at several U.K. financial firms.

To deal with the myriad new problems, governments are boosting spending for defense, addressing climate change and “social support,” paid for by adding debt, Munro found. Plus, he added, central banks will no longer be inclined toward “aggressive monetary easing in response to economic downturns.”

Further, stock market cycles will grow shorter, he opined: “Higher inflation and higher rates may create a tendency for markets to trend up and then reverse quickly.”

There already is some evidence for this rapid market fluctuation. The S&P 500 interrupted a long post-pandemic bull run with a big slide in 2022, as the Federal Reserve started to tighten. More recently, a recovery rally fell apart in April 2024 amid heightening concerns over inflation—concerns that have abated thus far in May.

As “prolonged periods of upward-trending markets look to have ended,” he wrote, “capital that has a permanent exposure to market beta may be vulnerable.” So strategies that follow market indexes can be expected to render lower performance than in the past.

In addition, using correlations between different stocks, when constructing a portfolio, also will become outmoded. “Investors exposed to markets will increasingly look for returns that do not rely on trending markets,” Munro contended.

In light of the changing situation, Munro recommended that quantitative capabilities be at the center of researching fresh investing directions. He advocated moving to broad array of strategies to be used in different circumstances, such as the thematic approach, which encompasses income, absolute return and balanced (divided between equities and debt) strategies, among others—and rests on researching macroeconomic, geopolitical and technology trends.

Munro admonished in his paper that “investors are facing a very different regime and are unlikely to see a return to the benign conditions of the previous decade.”

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Tags: BNY Mellon Investment Management, Euan Munro, Federal Reserve, Financial Crisis, immigration, Inflation, market cycles, multi-strategy, Newton Investment Management, S&P 500, thematic, trends

Despite objections, Amin Nasser was not only overwhelmingly re-elected to BlackRock’s board, but he received nearly 3 million more votes than Chairman Larry Fink.

Despite objections from New York City Comptroller Brad Lander and the $86 billion New York City Employees’ Retirement System, BlackRock shareholders overwhelmingly voted to re-elect Saudi Aramco CEO Amin Nasser to the company’s board of directors.

Nasser received approximately 119.8 million votes to remain on the board for a second year, while approximately 1.8 million votes went against him. All 16 board members were re-elected by a large margin, including CEO and Chairman Larry Fink, who received approximately 117 million votes to remain on the board, with approximately 4.5 million votes going against him.

In a regulatory filing submitted to the SEC earlier in May, Lander urged BlackRock shareholders to vote against Nasser remaining on the board, saying his role with Saudi Aramco is a conflict of interest that compromises his ability to provide independent oversight, particularly concerning BlackRock’s decarbonization strategy.

“Nasser is not qualified to serve as an independent member of BlackRock’s Board,” Lander wrote in the SEC filing. “His nomination represents a step backward for the company, aligning BlackRock with outdated perspectives and practices that are incompatible with the pressing need for climate action and responsible business practices as reflected in BlackRock’s own commitments.”

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Lander said in the filing that Nasser has been an advocate for expanding fossil fuels and moving away from decarbonization efforts, and that his position “as CEO of a company implicated in one of the largest alleged climate-related breaches of international human rights law is an unwarranted reputational risk for BlackRock, its board of directors, and its shareholders.”

According to the filing, NYCERS has approximately $43 million invested in BlackRock, which in turn manages approximately $19 billion on behalf of the retirement system.

Lander took issue with BlackRock regarding Nasser as an independent director, noting that Aramco has conducted “sizeable, related-party transactions with BlackRock within the past three years,” including the acquisition of a 49% equity stake in Aramco Gas Pipelines Company for $15.5 billion by a consortium of investors co-led by BlackRock.

In the filing, Lander cited NYSE listing standards saying that a director is not considered independent if the director works for a company that has made payments to, or received payments from, the listed company “in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues.”

Lander also cited a letter Nasser received in June 2023 from United Nations-appointed independent human rights experts raising concerns that “Saudi Aramco’s actions may contribute to the undermining of the Paris Agreement and international cooperation in the face of the existential threat to human rights posed by climate change.”

According to BlackRock’s May 15 proxy statement, the firm’s nominating, governance and sustainability committee identified Nasser in 2023 as a candidate with “significant leadership skills and experience in international business, sustainability and the energy transition, and the Middle East region.” BlackRock said its NGSC regularly reviews the overall composition of the board “to assess whether it reflects the appropriate mix of skills, experience, backgrounds and qualifications that are relevant to BlackRock’s current and future global business and strategy.”