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GAM Talks Q3 2019: What themes are you currently playing?

1 August 2019

We asked a group of our portfolio managers a series of questions about their respective asset classes. This third video, in a series of three, looks at the investment themes they are exploring.

Q3: What themes are you currently playing?

Swetha Ramachandran on Luxury Equities

What we are excited about thematically is the rising growth of the millennial population and their particular tastes, as well as the rising spend of female consumers on themselves – the indulgence factor. The themes that are exposed to this are primarily soft luxury, which is leather goods and handbags, as well as prestige cosmetics and skincare which are enjoying tremendous growth at the moment because of a high adoption rate, particularly among Chinese millennials. Another category that is especially interesting is health and wellness, given this has been dominating consumer attention for quite some time now. We think the companies that are most exposed to this are the premium sporting goods manufacturers.

Tim Love on Emerging Market Equities

We are overweight Brazil and Russia, both of which we like at this stage. I think they have got through their baptism of fire and turned the corner in terms of their credit rating outlooks and their reserve profiles. For Brazil, from a legislative aspect, we are hopeful for some programme of reform, even if it is watered down, especially on the pension aspects in the third and fourth quarters of this year. In addition to those two we like a frontier group of countries: Vietnam, Argentina, Romania, Pakistan and Saudi Arabia at this juncture, although less so Saudi now it has gone into the emerging markets index. On top of that there are the reform programme themes within China and India, aligned to the five-year plan in China and Prime Minister Modi in the case of India. That is really where our bigger alpha bets are in the context of the emerging markets.

Jian Shi Cortesi on Asia and China Growth Equities

A major theme I am playing this year is to be positioned for the upcoming recovery in some of the sectors in Asia. These sectors include Asian auto stocks, Chinese insurance companies and Chinese internet companies. Some of the stocks in these sectors have come down 60% since the trade war started last year and we are now seeing three lows – low valuations, low investor sentiment and low analyst expectations. But in the meantime government policies are turning very supportive in China, so these factors together are building a good basis for a recovery.

Tom Mansley on Mortgage Backed Securities

We continue to like very seasoned mortgages on the residential side of the mortgage market as there is a lot of stability. The person has been in their house for maybe 12 years, demonstrating an ability to pay and we have a solid asset behind the loan itself. In the commercial space we like very diversified small balance commercial loans or apartment buildings. One of the reasons we like apartment buildings very much right now is that there is a huge demand for rental in the US as there has been a major shift in the population, about 5% over the last 10 years from homeowner to renter, creating a lot of demand for rental. In the commercial space we are much less keen on large retail, shopping malls for example, as the competition from the internet is really hurting them.

Gianmarco Mondani on European Non-Directional Equities

We believe that in the current uncertain economic times being long companies with ample visibility and strong earnings growth and short companies with deep structural problems, which can only hope for a strong economic rebound to improve their situation, is a good way to translate alpha generation into absolute performance in all market conditions.

Patrick Smouha on Developed Market Credit

At the heart of our philosophy is the fact we invest mainly in investment grade companies, but we are happy going lower down the capital structure. If we feel we are in safe companies we can capture high income by going lower down the capital structure. That is why we find it attractive to invest in the subordinated debt of strong, quality companies, a lot of them investment grade. In the Additional Tier 1 contingent convertible bond (AT1 CoCo) space, which is one of the spaces in which we are involved, most of the issuance has already been done so now much of it is just refinancing. Therefore from a supply perspective we should see very limited supply going forward; that is actually a strong technical for us as prices should go up due to the fact there will be less supply. In Restricted Tier 1s we have seen a couple of issues. It is still a very small space which is maybe not followed as much as AT1 CoCos, for instance, but where we find there are attractive opportunities because there is a complexity premium due to the fact it is generally under researched.

Important legal information
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.