Globalisation in reverse as companies switch to ‘onshoring’ to gain an edge

Investment house Ellerston Capital’s Bill Pridham says the shift to “deglobalisation” of the economy has much further to run and many companies hit by supply chain bottlenecks will need to bring production closer to their customers to gain a competitive edge.

Following turmoil in global supply chains, some argue there is a major shift taking place in the world economy whereby the decades-long move towards more interconnected supply chains is going into reverse.

Bill Pridham, portfolio manager at Ellerston Capital.Credit: Paul Harris

Pridham, who runs one of Ellerston’s global funds and provides pro bono services to philanthropic manager Future Generation, is convinced there is a lot further to go in the “deglobalisation” trend — and he’s trying to pick the corporate winners.

Supply chains have been thrown into chaos in recent years, as the US-China trade war, the COVID-19 pandemic and the Ukraine war all contributed to shortages of everything from cars to microchips.

While the more acute shortages are likely to be resolved, Pridham says the experience has been a powerful lesson for companies. It has shown that having reliable supplies can be a matter of competitive advantage. As a result, it’s leading to a major rethink by some firms.

“It’s really underscored how critical supply chains are, and many companies are really rethinking their supply chain, in terms of their sourcing and the logistics around that,” Pridham says.

Rather than relying heavily on major manufacturing hubs such as China, for example, he says companies are increasingly prepared to have their manufacturing located closer to home, even if it is not as cheap.

“What you’re going to see, and will continue to see, is more onshoring of production and getting that product closer to the consumers and customers,” he says in an interview with The Sydney Morning Herald and The Age.

The crunch on supply chains is one of the key reasons for the worldwide rise in inflation, as shortages have forced up the cost of many manufactured goods, while freight expenses have also surged.

Some of the stocks Pridham is betting will win from “deglobalisation” include US-listed GXO Logistics and a US contract manufacturer called Flex.

Aside from deglobalisation, another deep-seated trend Pridham is backing is the boom in data usage, which he has targeted by investing in data infrastructure businesses, including European mobile tower owner Cellnex Telecoms.

Domestically, the same theme helped drive the takeover of Vocus Group last year, while Optus last year announced a deal to sell down its mobile tower network.

Pridham, who is Canadian by background and has worked in financial markets for more than two decades, manages the global mid-small cap fund at $4 billion investment manager Ellerston Capital.

He also manages money for Future Generation, an investment manager that gives investors access to portfolios managed by a group of fund managers, who are working pro-bono, with 1 per cent of its assets given to charities.

Pridham’s fund returned -2.35 per cent after fees in the year to March, underperforming its benchmark, but it has returned 15.68 per cent in the three years to March, ahead of 10.33 per cent for its benchmark. Pridham says a key reason it has lagged the benchmark in the shorter term is because it is not invested in mining stocks, which have surged in the recent commodities boom.

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