Finance firm sets out three big challenges

A DUNDEE finance firm has highlighted supply chain disruption, inflation and rising interest rates as the main issues for 2022.

Alliance Trust say those will be the main challenges facing the fund managers which select stocks for the firm’s global equity portfolio.

The measure of any portfolio’s strength, however, is in how it is set up to deal with them.

Andrew Wellington, chief investment officer at Lyrical, one of the Alliance Trust fund managers, said demand has returned as the global economy has reopened.

He said: “Companies are having a difficult time sourcing everything they need to meet that demand.

“With those supply shortages we have seen prices rise, driving inflation.

“The supply chain and inflation issues are difficult challenges for any management team.

“For most of the companies in our portfolio, the net result of these challenges has been positive to the bottom line, with higher prices more than offsetting lower volumes and increased costs.”

Black Creek Investment Management founder and president Bill Kanko, another fund manager, said the global economy has recovered from the shutdowns imposed by Covid-19.

Mr Kanko said it has done so facing shortages in various products and hiccups in supply chains.

“Material costs have risen and labour costs seem set to rise as well,” he said.

“Current nominal interest rates are well below the inflation numbers.

“A key challenge will be to determine whether this jump in prices is cyclical and temporary or ongoing.

“Higher interest rates would be negative for both bond and equity markets.

“Low interest rates have also caused bubbles to appear in some sectors of the market.

“As rates rise, these bubbles may burst.”