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How structural drivers unlock investment opportunity
How structural drivers unlock investment opportunity

How structural drivers unlock investment opportunity

At AFIC, to deliver long-term investment growth, we look at long-term company performance and opportunity. Structural drivers are an important indicator of opportunity. Senior Portfolio Manager, David Grace, shares his views on what type of drivers he looks for and how it informs decisions to invest for long-term returns.

The performance of equity markets and economic forecasts globally has been improving in recent months. However, this is off the back of significant volatility in investment markets throughout 2020 and provides a timely reminder of the importance, and value, of investing for sustained growth over the longer-term, avoiding cyclical trends and winners and losers.

At AFIC, we’re focused on the structural drivers of a business over a five-to-ten-year period, including fundamentals such as cash flow and ability to invest for growth, but also industry and external trends that may continue, disappear, or accelerate over time and how they will impact business costs, revenue, and growth.

This long-held approach has allowed us to make some key acquisitions through market downturns, whilst also increasing our holdings in quality companies that can continue to grow into the future.

COVID-19 saw many companies forced to improve their cash flow, business processes and balance sheets. However, it also accelerated some trends and shifted some perceptions of brands and products that led to many businesses experiencing growth throughout the global pandemic. In fact, many of the companies we hold are in a better position than before the pandemic.

Below are examples of companies that AFIC believes have strong structural growth drivers despite the impact of cyclical events such as a pandemic. We have been invested in these companies for some time, and we’ve increased our holding over the last six to 12 months.

Fisher & Paykel Healthcare

Fisher & Paykel Healthcare is a business that has long been established in the intensive care sections of hospitals. Providing humidifiers and consumable components in ventilators, and operating in over 100 different countries, the business has unsurprisingly benefited from the massive spike in ventilator sales globally.

However, the company has previously had challenges bringing its high-quality products to the general wards in hospitals where their benefits can be applied more broadly.

Due to the surge in demand for ventilators throughout COVID-19, more patients in general hospital wards were treated with various Fisher & Paykel products, and they experienced better results than conventional oxygen therapy. There has been an increasing volume of clinical evidence highlighting the better results from Fisher & Paykel products.

The pandemic served as an accelerant to Fisher & Paykel Healthcare’s long-term growth initiatives set before the crisis. We have been invested in Fisher & Paykel for a number of years.


Transurban faced significant headwinds following the outbreak of COVID-19 due to the rapid decrease in traffic volume as a result of restriction of movement due to lockdowns. Despite this, our long-term view meant we remained confident in our investment in the company.

We feel very confident with the long-term growth horizons for Transurban because the structural drivers of the business will allow for continued growth over time. We see no structural change in how people will use cars in the longer-term. In fact, the latest traffic data is also showing that the Melbourne City Link is only 25 per cent lower than pre-COVID levels, improving every week, and outside Victoria traffic volumes have returned to normal for the most part.

Sydney Airport

As a monopoly infrastructure company, we are confident that Sydney Airport is going to be around for the long term and growth will continue in the sector despite the devastating blow of the pandemic. We are already seeing evidence of this with the Government’s recent announcement of a $1.2 billion tourism package, which includes a heavy subsidy on airfares.

The main issue weighing on the business through the pandemic was its capital structure, it was holding too much debt for an environment where people were not travelling. The steadily decreasing cash holding within the company put downward pressure on the share price, and the result was a capital raising last year which AFIC participated in.

Their balance sheet is in a far more appropriate place for the climate the company finds itself in. With the improved capital structure following the raising, we now have an increased holding in a monopoly asset that will benefit greatly from a likely increase in travel volumes if the COVID-19 landscape continues to improve. Although there may be reduced business travel for a long time to come, we are confident in an increase in leisure travel in the current conditions.

Our long-term perspective and focus on companies with sustainable competitive advantages helped us achieve relatively strong performance off the back of a challenging year, with the portfolio up 15.2 per cent to 31 December 2020 compared with the S&P/ASX 200 accumulation index, which was up 13.7 per cent over the same period. Both of these figures include the full benefit of franking.

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