Is cash still the bedrock of our civilisation?
As the table below reflects, we’ve been writing off cash for 6 decades.
Last year Waverton fund manager James Mee put forward the question: “Is the cashless society in our future?” and the answer was that for now cash will “remain the bedrock of our civilisation”. As a follow up we look at what this means for investors, whether there is a credible counter case and most importantly what it means for the consumer.
Investors value cash in more than one sense
In December Innovia, the company behind polymer banknote operations in Australia, Mexico and most recently the UK (generating net revenues of around £340 million[1]) was acquired by CCL Industries [2] for £680 million. The deal is expected to boost CCL’s 2017 sales by 5 billion Canadian Dollars. The fact that there is M&A activity in the space is indicative that cash is not yet obsolete.
The Innovia sale was good for its private investors but also for shareholders of CCL.
Source: Factset (Data from 24.0216 to 24.02.17)
The cash paradox is that, despite the emergence of new payment technology, both population and economic growth mean that there will actually be more cash in circulation than ever before. Loomis, who hold a dominant position in the cash transportation and management market, have projected future total cash in circulation rising over the next ten years at 1.3% CAGR. Chris Garsten & Charles Glasse, who manage Waverton’s European Funds, are long term holders of Loomis based on their market dominance and shareholder friendly approach.
Don’t write off the innovators.
Cryptocurrency has been promising to change the way we purchase goods since 2008. Up to now the likes of Bitcoin have struggled to establish credibility, however recent developments in Switzerland may change this. Rather than discourage block chain innovation, the government has allowed companies that accept less than 1 million USD on deposit to be classified as entities other than banks. This means that the small cohort of Blockchain start-ups based in the canton of Zug (aka “Crypto Valley”) can operate outside strict regulatory regimes, and perhaps implement a digital currency that will succeed the Swiss Franc. Although one may argue that a Blockchain sovereign state is still a pipedream, transactions in Bitcoin are already accepted on the Swiss train service SBB. When it comes to coinage and central banking policy, Switzerland has shown itself to be innovative in the past and a move towards a digital currency could inspire other countries to follow.
What about the UK?
In March this year the British public will be introduced to a brand new 12 sided pound coin. This has been a monumental project for the Mint and Treasury to ensure that all cash handling merchants are ready to accept the new coinage which is harder to defraud. This gives an indication of our government’s mid-term view on cash in our society. Beyond the UK, cash is still the medium of exchange across Emerging Markets and dominant companies in the space still stand to gain from this trend[3].
Source: MasterCard/CLSA (Data as at 24.02.17)
Whilst we are not adverse to innovators in the space, nor won over by news headlines, our view is unchanged that cash will remain even if consumers use it less. As always, our objective will be to uncover the leading investment opportunities to benefit our client portfolios.
By Jonno Ross
RISK WARNINGS
The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.
Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise. Capital security is not guaranteed
[1] Source: Bloomberg
[2] CCL Industries – Listed in Toronto, Canada
[3] Between 2011 and 2016 the growth of cash handling in Latin America, the Middle East and Africa has been in excess of 6%; in Asia it is close to 9%.
Jonno Ross – Business Development Executive
Jonno joined Waverton in November 2014 to support our Investment Funds Team. In January 2017 he became responsible for client relations and business development for Waverton’s Investment Funds. Jonno graduated in July 2014 from Exeter University with a degree in Spanish and French. He holds the CFA UK Level 4 Certificate in Investment Management.
