Jody Jonsson, portfolio manager at Capital Group and Jacob Mitchell, Chief Investment Officer and portfolio manager at Antipodes Partners shared their thoughts on global opportunities in the “Scouring the World for Opportunities in an Aging Bull Market” session at the Morningstar Investment Conference 2018.
Jacob Mitchell manages the flagship Antipodes Global Fund 41072. Mitchell looks for undervalued, high-quality names in developed and emerging markets. The strategy uses quantitative filters and bottom-up qualitative research to take high conviction positions. Jonsson takes a slightly different approach for Capital Group New Perspective (AU) 40984. The strategy uses a multimanager approach, seeking growth stocks when they are mispriced or misunderstood. Both portfolios weigh heavy in technology names and have notable exposure in Asia – two areas of opportunities these managers have identified and discussed during the session.
Where are the opportunities?
Mitchell believes certain technology companies are “waking up,” meaning they are becoming much more competitive in their sector, and this is where the opportunities lie. Cisco, for example, is increasing capital to its investors via buybacks (which in turn increases the share price) and licensing their models to subscribers has been a source of growth. Jonsson discussed Amazon and Facebook. Amazon has been a holding in Jonsson’s portfolio since 2007, and the group has developed a close and privileged relationship with the firm as a result. In fact, Jonsson said Capital Group is one out of only two fund managers Amazon meets with annually. Facebook was next, which Jonsson believes is undervalued following the Cambridge Analytica scandal in early 2018. Jonsson believes the underlying assets still hold a lot of value within the company, including applications and tools such as Facebook Messenger and WhatsApp, and therefore still makes Facebook a positive long-term investment.
Both panellists also agreed that the markets in Asia and Japan are very attractive. Mitchell stated that Antipodes does not have to allocate a specific percentage to invest towards the region but holds about half of the portfolio in Asia, particularly in Japan and South Korea. These positions have been stong performers for the fund. Both Jonsson and Mitchell recognised that Samsung is now an industry leader, and despite some blips in the last few years, continues to experience strong growth. This is because Samsung has made a big push into the market with cell phone sales increasing.
ESG
Next, the pair discussed the increasingly heated topic: ESG (environmental, social, and governance). Jonsson said that Capital Group has their own approach to assess various ESG risks in a company before investing in it. Capital Group puts a greater emphasis on governance, compared to other factors. They have a consistent set of policies and procedures that are applied across the globe. Meanwhile Antipodes outsources to Sustainalytics for stock-specific ESG insights, which is incorporated into the fundamental analyses.
Shorting
While the pair agreed on many fronts at the Conference, shorting was not one of them. Mitchell, who also manages the long-short strategy Antipodes Global Fund 5667, made the case that shorting could add value through the cycle, whether an investment is made for the short or long term. Antipodes uses a similar process for long and short ideas. The strategy can short individual names and ETFs. Capital Group does not use shorting, however. Jonsson believes shorting requires focusing on short-term catalysts, which doesn’t align with the firm’s long-term mindset (companies are held for an average for seven years).
Audience Opinion
At the beginning of the talk, a live poll showed that about 40% of people were concerned the markets appeared fully valued and 37% were concerned about the geo-political climate. This showed there was a decent amount of concern heading into the global equities session. After Mitchell and Jonsson shared their views on a wide array of topics, it seems that people were feeling a bit better with the overall climate in the global equity environment. When asked about their portfolio positioning, 63% of people said that they would stay the same with their current allocation towards global equities and 32% said that they would even increase their allocation into global stocks.
The overall view from Jonsson and Mitchell was that even though valuations are high and there are plenty of geo-political risks to consider, they are still finding attractive opportunities in equity markets (just not as many as they were five years ago). No matter what happens in the short term, long-term investors will be rewarded.
