Yesterday I got to see a showcase of where investing is going in 2019 and beyond. I picked up some good ideas. It helped confirm some of the opportunities I’ve been seeing in the markets. And it highlighted a couple of new areas. I wanted to tell you about these.
The ‘Meet the Managers’ roadshow is a popular event with financial advisers and some of their clients. Organiser, Clayton Coplestone of Heathcote Investment Partners, brings fund managers together to showcase investing trends. He’s been doing it for years and is well regarded in the industry.
I attended the Auckland event. The theme was ‘Investing in Uncertain Times: Are you Prepared?’
So, who was at my table? The CIO of a family office — having established an investment fund after the sale of a multi-million dollar business. A blockchain fund manager. And a semi-retired private investor — tracking his portfolio alongside a passion for stand-up paddle boarding.
Despite my dislike for conference rooms with no windows and lacklustre hotel catering, I enjoyed the day and got a lot out of it.
Global equities
Andy Budden from Capital Group in Singapore presented his take on global stocks and shares. He’s excited about emerging opportunities in cloud computing, biopharmaceuticals, and air travel. He outlined a potential doubling of demand for air travel over the next 15–20 years thanks to soaring demand in Asia. And amongst the duopoly manufacturers of Boeing and Airbus, a backlog of unfilled orders stretching eight years.
He sees shares in large multinationals offering the best potential to capture these trends. They have the size, scale, and spread around the world. His fund sees the strongest value and opportunity in European companies. The economic recovery in Europe has slowed but there’s room to loosen fiscal policy and boost growth.
Key global macro risks are around China, with escalating trade tensions and a decline in China’s share of US bound exports to the tune of 3.5%.
In a volatile macro environment, Budden sees an active management approach as critical.
The takeaway is there remains opportunity (for both growth and income) in large global companies when you buy their shares at a value price. Despite frothy markets, that could be an option in Europe. Especially in Britain where we still don’t know if they’re in or out of the EU and when.
Infrastructure
Shares in infrastructure companies like electricity grids, airports, and toll roads have unique investment characteristics. They combine strong income yield with the potential for some capital growth.
Maple-Brown Abbott, an infrastructure fund, presented at the roadshow. They highlight some of the benefits of global listed infrastructure stocks:
- A stable return profile due to the monopoly structure and low exposure to the global business cycle
- Less volatile than other global shares or real estate
- High income yield
- Good downside protection in the event of market downturn
Infrastructure stocks can be expensive because they’re sought after by sovereign wealth funds and big pension schemes. Yet, again, the fund is seeing value in Europe thanks to market sogginess.
Good example: National Grid [LSE:NG] in Britain. Bogged down with Brexit and Corbyn’s threats of nationalisation — though unlikely — the current share price offers value with a strong inflation-linked dividend yield (currently 5.6%).
Global natural resources
Tim Gerrard, mining engineer turned portfolio manager, represented Janus Henderson, specialising in mining, energy, and agricultural stocks.
He sees huge looming demand for metals powering the EV vehicle revolution. These cars need aluminium (iron ore) and copper for their batteries. The focus on EVs in the booming Chinese transport market is part of the reason for a worldwide copper shortage.
Shenzhen alone has 14,500 electric buses, the largest electrified public transport fleet in the world.
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Source: Ecowatch.com |
Contrarian investing
There were two fund managers representing contrarian investing. They focus on taking advantage of situations where many investors sell — to buy at value.
Stephen Bennie of Castle Point Funds has a good take on this. His ‘Ranger Fund’ only buys shares when there’s opportunity to do so at a reasonable PE (price-to-earnings ratio). Otherwise they simply hold cash ‘as default’.
He sees PE as the years it takes to repay our investment with earnings. So Auckland International Airport [NZX:AIA] with a current PE of 33 — under his theory, it could take 33 years to ‘earn out’ your investment.
I’m not sure I agree entirely. One of the reasons the airport sells at an expensive PE is because of an expectation for higher future earnings due to passenger and region growth. Plus the high book value of the assets.
He gives a good example with a2 Milk [NZX:ATM] though. Had you bought shares back in 2012 (and correctly considered the long term potential of the company) you would have effectively bought the business for a PE of around 1.36, meaning your investment would have paid off in just over a year and then moved into pure profit. And as it turned out, rapid profit thereafter.
Investing in China
Jonathan Wu of Premium China Funds spoke about equity and bond investment opportunities in China.
Although there’s been plenty of volatility in the past, he sees opportunity at current low prices. These prices belay the massive opportunity China presents as it moves up the value chain and becomes a vast consumer market in its own right.
His presentation was fitting — ‘Ride the Chinese Consumer into the Future’.
Despite a strong presentation, I have my doubts about the long trajectory of China’s economy. It faces aging demographics and heavy reliance on labour-intensive exports into the US.
I raised these with Jonathan at the cocktails session. He agreed one-child demographics may be a problem but not in the short or medium term. Moreover, he pointed out that China is relying less on its export sector — the opportunity lying within the growing consumer market.
Maybe we’re exposed to China enough in this country, and through investments like a2 Milk or Auckland International Airport that depend on their demand.
There were other presentations covering real estate (REITs), early stage investment, and asset allocation. For investors like me, focused on large-scale opportunities in global markets, the highlights were the ones mentioned.
Keep watch and invest well.
Regards,
Simon Angelo
Analyst, Money Morning New Zealand
Important disclosures
Simon Angelo owns shares in National Grid [LSE:NG] and Auckland International Airport [NZX:AIA] via portfolio manager Vistafolio.