25 April 2019
We asked a group of our portfolio managers a series of questions about their respective asset classes. This final video, in a series of three, asks them to discuss how they are approaching the current market environment in terms of investment themes.
Niall Gallagher on European Equities
The portfolio is mainly based on individual stock picks, but there are a few over-riding themes. We have a bias towards companies that are more exposed to some of the big global growth themes, such as the emergence of the emerging market middle class, so we favour luxury stocks. We also have companies exposed to technological disruption – either those that are doing the disruption or are likely to benefit from these big shifts, for example the shift toward electric cars and autonomous-driving. On top of that we have some exposure to areas of the European market that we believe are recovering quite well – Irish and Spanish house builders, for example. In all we see lots of really interesting opportunities in Europe, a combination of global growth, disruption and recovery themes.
Mark Hawtin on Technology
Opportunities for 2019 may be more balanced than they have been over the last few years. We are moving towards the end of what's been a very long bull market and therefore when we research the technology sector and disruptive opportunities in general we're looking at both the winners and the losers and there are plenty of both. If we look at the retail sector, for example, traditionally it's been the correct policy to take a long position in online internet retail companies and a short position in the incumbent bricks and mortar companies; yet we only need to look at the fate of US department stores to see how badly they have been faring. Going forward, therefore, I think one needs to be a little more attuned to what's going on in retail. Retail has become much more of an omnichannel business, so it's no longer just about online or bricks and mortar but the panoply of ways in which they sell to consumers. It has been very clearly shown that where a business has an omnichannel strategy it tends to sell an awful lot more product. Therefore we are looking for companies that clearly pursue an omnichannel strategy and very deliberately avoiding those online retail companies, that traditionally have been good areas of investment, as we believe they are starting to lose out by being a single channel to market.
Anthony Lawler on Systematic Investing
Markets are currently challenging for a lot of investment styles because there's a high degree of uncertainty about global growth and political risk. Our systematic models are highly adaptive; therefore as the market improves or deteriorates our models have the ability to shift their positioning very quickly. This helps us navigate these sorts of markets – with a willingness and an ability to change our positioning when the facts change.
Paul McNamara on Emerging Markets Fixed Income
At the moment we're running a fairly concentrated portfolio; we're looking at areas where things seem to us to be undervalued. At the same time we believe the low yielding markets of Central Europe, essentially Poland, Hungary, Romania and even the Czech Republic, appear to be much less attractive. I think concentrating on undervalued, high yielding markets is the best strategy from here.
Christian Gerlach on Commodities
I think in the current environment it is important to consider two scenarios. The first scenario is that there currently are backwardations [backwardation exists when demand outweighs supply, leading to higher prices] in energy – suggesting the Organisation of the Petroleum Exporting Countries (OPEC) will do a good job in restraining the supply coming on to the market, which would underpin the overall commodity market quite nicely. Going forward, this would also provide an inflationary anchor while the world economy potentially slows down a bit. We are also considering a second scenario in which a disinflationary drift reoccurs. This is something we have observed since October 2019 when crude oil prices sold off and have yet to return to this level. In this second scenario, we believe it is best to focus on precious metals, from a commodity perspective, as a disinflationary hedge and slowly unwind cyclical exposure.
Christophe Eggmann on Healthcare
Because our focus is clearly on innovation – we put innovation at the core of every single investment decision – we are less focused on navigating current market conditions. We are more concerned with navigating the vagaries of pipeline development, assessing new technologies, than looking at interest rates or other macroeconomic data points.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Reference to a security is not a recommendation to buy or sell that security. Past performance is no indicator for the current or future development.
The companies referenced were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.