Global Team Positioning: Consolidating Around Favorite Names, Core Secular Themes
Global Team Perspectives by Nick Niziolek, CFA
March 23, 2020
We wanted to provide a quick update about where we are seeing market opportunities, as a follow up to the thoughts we shared in our CIO conference call last week.
- Positioning reflects near-term caution, pending greater clarity on fiscal and monetary policy, which will be key to guiding the recovery trajectory. On this point, monetary policy is encouraging. The Federal Reserve’s move to extend loans to small businesses, coupled with pending fiscal support (loan forgiveness), is the equivalent of helicoptering in money to small businesses. This plan is a welcomed development, which could boost market sentiment.
- We are making targeted additions, focused primarily on consolidation around core positions and secular theme opportunities. In uncertain times, thematic tailwinds can provide a degree of resilience and growth potential. These include:
- Global payments. As we discussed last September and November, the industry is evolving and enabling the growth of many online industries. We believe these companies will continue to be vital as demand evolves and are consolidating around those that we view as the long-term winners in this space.
- Bioprocessing. Last October, we shared a post outlining the opportunities we saw in bioprocessing, as an attractive alternative to higher-risk biotechnology. During this downturn, we’ve been adding to bioprocessing positions. While drug companies have been the “villain” of both political parties for most of the past decade, we’d expect some “heroes” to come out of this. Also, select names can benefit from increased emphasis on R&D spending. We are not trying to pick the winning company that can develop a cure or vaccine. Instead, we are investing through the supply chain with expectations that there will be many beneficiaries in this post-crisis world.
- Big Data and artificial intelligence. In October of 2018, we shared some thoughts on investment opportunities tied to AI strategies. China’s significant investment in AI and Big Data has been noted as a factor in its ability to contain coronavirus. Companies benefiting from AI investments have been represented in our portfolios for a good while already. Looking ahead, while the U.S. would be unlikely to duplicate such draconian surveillance practices, we expect the U.S. and other countries could take a page from this book, post crisis, which would catalyze a number of opportunities.
- We maintain exposure to China, where we believe a significant turnaround has already occurred. A good deal of data shows that companies are coming back on line and the utilization rate is going up. As we noted in last week’s call, we don’t rely on official government data to guide our view. We are using a variety of data to triangulate on what’s going on, including analyzing subway traffic, machinery shipments, and data across supply chains. For example, we’ve had many conversations with management teams of European industrial companies with operations in China.
- Chinese government stimulus will create additional opportunities, but these will likely be more domestically focused. We would not be surprised to see aggressive fiscal stimulus as early as April.
- While we are very much focused on managing risk/reward in the current markets, we are also looking longer term. We believe the global pandemic has long-term implications for supply chains. U.S. companies are likely to build stronger localized supply chains and reduce their dependency on China and other Asian countries. This could actually benefit China as it seeks to fill the void left by a retrenchment of the US in Asian politics.
In closing, we believe our investment approach—which combines top-down thematic analysis with multi-facet and independent bottom-up research—will serve the global and international portfolios well during this extremely challenging time. We are already seeing attractive entry points emerge in the wake of panic selling, which we are using to invest in fundamentally strong names that we believe can weather this current storm.
Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific companies, securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to buy or sell. Investing in non-U.S. markets entails greater investment risk, and these risks are greater for emerging markets. The above commentary for informational and educational purposes only and shouldn’t be considered investment advice.
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