Supply chain disruption: a problem of logistics or consumption?

Last week I was out shopping (surprising, I know) but the jumper I wanted wasn’t available in my size. So, I asked the sales assistant if I could order one instead. Of course, I could – but she warned me that “due to supply issues our deliveries are delayed, and it could take up to 10 days to receive your order”. I immediately felt put out that I couldn’t get it sooner. And it suddenly dawned on me: when did 10 days, even a week, become too long to wait for something?

“The supply chain stuff is really tricky.” — Elon Musk, CEO of Tesla

Surveying the supply chain disruption, it’s tempting to clock it all up to the pandemic and leave it at that. But the problem isn’t necessarily scarcity. The problem is us. Many factors have played a role in disrupting the supply chain, but at the end of the day, the main cause is simply that we consume a LOT of stuff – and we want it all now.

Since the pandemic started, e-commerce as boomed, and alongside technology it’s become a clear winner. Although certain products are limited due to actual shortages – semiconductor chips for example – others are just in such high demand that they’ve clogged up the system.

I’ll admit that I’ve grown accustomed to next-day delivery, but the pandemic has forced me to think a little more about the complex systems behind that shipping and the human cost of overnighting that Amazon package. So how can we acknowledge this, while also answering the most-asked question this month: ‘how am I going to get presents this year?’. One option is to shop local and look at what’s readily available. And this one action could help take some of the pressure off the global supply chain, while supporting local economies as well. Win-win!

Going local with your investment portfolio

Investors could also go local with their portfolios. The UK stock market is one of the few in the world to currently have some relative value. But despite a Brexit resolution, UK equities have remained very much out of favour in recent years. And the UK’s smallest companies in particular offer good potential.

Since the start of the year, the average IA UK Smaller Companies fund has delivered 20%*. Over the last decade, this average return rises to a whooping 265%** – compared to the FTSE All Share which returned 109%**.

And while the companies themselves may be local, their clients may not be. One such example that fits in perfectly with supply chain discussions is Braemar Shipping Services, a UK-based company that Simon Moon, manager of the Unicorn UK Smaller Companies fund told us about on our podcast. “When you look at the supply chain issues as a result of the blocking of the Suez Canal, it’s a positive for Braemar, as that sort of friction puts upward pressure on rates, and the higher the rates, the higher the commission,” he said.

Liontrust UK Smaller Companies has been one of the best performing funds over the past decade returning just under 469%** for investors. The fund is run by Anthony Cross and Julian Fosh – the managers behind the highly successful Liontrust Special Situations fund. In 2016 the team also launched the Liontrust UK Micro Cap fund investing in Britain’s smallest businesses.

Jupiter UK Smaller Companies is run by another veteran, Dan Nickols, who consistently outperforms. This fund offers investors access to a broad range of themes across the spectrum of the UK’s smallest companies and has returned 328%** over the past decade.

The supply chain issues this Christmas are perhaps a useful reminder that, as individual consumers, we can all look a little closer to home for not only the presents under the tree but also our investment portfolio.

P.S. the aforementioned jumper was received in 6 days, and it was perfect!

*Source: FE fundinfo, total returns in sterling, 31 Dec 2020 to 7 Dec 2021
**Source: FE fundinfo, total returns in sterling, 7 Dec 2011 to 7 Dec 2021