Roy Keenan from Yarra Capital Management shares insights with James Dunn from The Inside Network on the role of active management. The Inside Adviser
After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
T.Rowe Price wins global fund of the year
The annual Awards held by Morningstar saw the winners of 2021 announced across various categories, something we covered here. Taking the majority of the awards was the team at Hyperion, which was also rated the overall Fund Manager for the year. Taking the Global Equities Fund Manager of the Year award, however, was Scott Berg and his team, which runs the T.Rowe Price Global Equities Fund that delivered “strong risk-adjusted returns of 31.84% for the year’; spoiling the Hyperion party. The strategy outperformed its benchmark, which delivered just 6.0%, taking the ten-year result to 17.0% a year.
The fund is a high-conviction, truly global equity portfolio that invests in 147 companies around the world that exhibit above-average and sustainable growth characteristics. Over the last year the fund has benefited from selecting companies that used the health crisis as an opportunity to grow their digital and cloud footprints, and further improve fundamental business practices.
However, the common view among fund managers is that while markets have recovered back to their pre-COVID levels, some are at all-time highs despite having weaker economic conditions than before. Going forward, we will most likely be in a low-growth world. T.Rowe Price says “in the current environment, we think the key is to maintain portfolio breadth (having a balanced portfolio of holdings), diversification, and to apply risk control and active stock decision-making as we work through what is going to be an uneven path of recovery and improvement. Valuations are important, and we need to manage pockets of excessive optimism along with any uncertainty that arises with respect to US policy-making.”
Portfolio manager Scott Berg is surprised by the optimism reflected in markets despite high case numbers throughout Europe and US. A new variant of the virus is putting countries into lockdown again, causing economic headwinds and pushing the long-awaited rebound further and further away. As a result, the idea is to be a little prudent in terms of portfolio positioning in the short term. The fund still owns “a blend of structural winners, durable compounders, and higher-yielding names that held up well during the March sell-off but lagged on the way back up.” With volatility likely to increase, Berg advises investors to be more selective and active, and at times to take a contrarian approach.
Sector-wise, the fund is overweight consumer discretionary and financials, while there has been an increase in real estate, industrials and business services. Exposures to material and utilities were. On a country allocation basis, the Pacific ex-Japan increased, while Europe decreased. The preference is to be overweight fast-growing emerging market countries with low debt-to-GDP ratios and with a rising middle-class, such as India, Indonesia, the Philippines, and Peru.
Commenting on the outlook the team “expect the COVID‑on/COVID‑off trade to continue to flip‑flop back and forth as it did through the later stages of 2020.” Its focus is on a number of areas:
- Positive news on vaccines – Will drive stocks that have been hit by the virus i.e. aviation, travel, leisure, energy, financials and REITs.
- Financials – The fund has been increasing its exposure to this sector but has focused on investment banking, insurance and investment managers rather than traditional banks.
- Digital – COVID has unleashed a list of new trends such as Buy Now Pay Later, digital payments and platforms that allow for the delivery of services and products.
Berg believes that this sector is still in its infancy. As such it is looking “to scour all geographies, using our global research platform, to find, in our view, the best investment opportunities.”
Secular growth stocks at the right price should add to already good returns but as seen over the last few weeks, a continuation of the rotation trade into value, small‑caps, and non‑US stocks could play out. Selectivity remains the crucial element in a world that remains defined by extreme outcomes.
Top 10 Holdings (31-Jan-2021)
