In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal the biggest risks to the bull market, tell us their unpopular investment opinions, discuss what they'd never buy, and recount the best piece of advice they’ve ever been given.
This week our interviewee is Alison Savas, manager of Morningstar Silver Medalist Antipodes Global Fund - Long.
Describe Your Investment Strategy
Our philosophy is ‘pragmatic value’. We seek out companies that are mispriced relative to their business resilience and growth profile, and we will look across the spectrum of growth to find these opportunities. If you buy weak businesses just because they are cheap, or if you sacrifice margin of safety to own momentum, you risk capital destruction.
What are the Biggest Investment Opportunities in 2024?
The forgotten 490! We’re at multi decade high levels of market concentration and narrow performance. History shows this doesn’t persist, and we’ve started to see some rotation. This can continue as quality stocks globally are priced at all time high relative valuations and approaching dot.com bubble extremes in the US. The valuation of quality relative to value is also at extreme levels. Look for opportunities beyond the mega-caps where some of the earnings streams aren’t attractively priced. While the market is focussing on Nvidia (NVDA) we’re finding AI beneficiaries on mid-high teens multiples such as TSMC (2330), Qualcomm (QCOM), Oracle (ORCL). There are also cyclicals that have meaningfully de-rated with the weakness in the industrial production cycle. Some have resilient supply/demand dynamics yet remain priced for recession – notably European-listed global multinationals.
The consensus “sell China” is also a unique valuation opportunity. At 8x earnings, China is priced at a 30% discount to trend valuations. The macro risks are well known but there’s been a greater shift towards supporting activity and the equity market.
What are the Biggest Risks to the Current Bull Market?
US equities are priced like an oasis of prosperity compared to the rest of the world. The US economy has been relatively insensitive to an aggressive rate hiking cycle, the consumer has been propelled by excess savings accumulated from Covid-19 stimulus, and we’re on the cusp of an AI/climate driven investment boom. But cracks are starting to form. Excess savings are on the verge of depletion and personal consumption (70% of GDP) is losing steam. The policy lag of higher rates is beginning to cascade through credit and the manufacturing sector outside of high-tech industries remains weak. The risk is the US market is over-pricing the probability of a soft landing and under-pricing a higher for longer rate environment which could induce a harder landing.
Who is the Most Inspiring Person You've Worked With and Why?
The first portfolio manager I worked for taught me to not assume profitability and valuations always mean revert. Understand the competitive environment, and implications for a company’s financial performance.
What, if Any, Investments Would Fit Into the 'Buy and Hold Forever' Category?
We’ve owned Microsoft (MSFT) for the last 9 years as it has evolved from incumbent to disruptor. It’s an extremely resilient platform business with the advantage of scale and networking effects. They use their formidable balance sheet for R&D, capex and M&A with the ability to launch new products into a very large, sticky client base creating a wide economic moat. Today, 5% of the world’s GDP is spent on tech, and the bulk of this spend is still on premise. Microsoft is in the box seat to benefit from these structural growth trends – the duration of its growth profile is long, with a relatively high degree of confidence. Whether or not it can be held forever ultimately comes down to whether the valuation remains attractive relative to the earnings stream.
What Would You Never Invest in?
A weak business just because it’s cheap. This can miss structural change – the stock is cheap for a reason.
How Worried Should Active Managers Be About the Future?
If we focus on our goal of delivering returns in excess of the benchmark through the cycle with lower levels of risk, and to invest with a capital preservation mindset, we will have a solid business for years to come. Active management also has an important role to achieve better ESG outcomes through active ownership and engagement.
What Unpopular Investment Opinions Do You Have?
Private equity-backed businesses can be exposed in a higher for longer rate environment. PE-backed companies comprise 36% of outstanding leveraged and high yield loans, a market worth approximately $2.7 trillion. Most of this debt is floating rate and unhedged. The servicing cost is now 10%, from 4% in 2021, with median interest consuming 43% of EBITDA. The linkages to the real economy are very real. PE-backed firms alone account for around 10% of the US workforce. If flows into private equity – or private credit – slow, and/or the economy slows, the vulnerability of the underlying borrowers will be revealed.
Has Crypto's Resilience Surprised You? And Will We See a Crypto ETF in the UK?
Yes, it has. Despite market volatility, regulatory challenges, exchange blow-ups and scepticism from mainstream financial institutions, crypto has shown a remarkable ability to bounce back. As for a crypto ETF in the UK – anything is possible!
Does Asset Management Have a Role in Promoting Social Mobility?
It’s critical people from all walks of life have access to high quality asset management either through pension funds or personal savings – big or small. The ability to grow and protect capital over the long term can have extraordinary impacts on lives. The industry has a role via providing products that enable a broader set of investors access to active strategies and promoting investor education.
Have you Ever Engaged with a Company and Been Particularly Pleased (or Disappointed) by the Outcome?
We engaged with Newcrest Mining. Despite industry leading asset life, cash costs and production growth potential, Newcrest failed to generate significant shareholder value and was priced at a discount to peers. Share repurchases to demonstrate the mis-valuation, instead of unexpected equity funded M&A, could have made the value case more apparent. This valuation discrepancy was ultimately noticed by Newmont, which acquired Newcrest.
What's the Best Bit of Advice You've Ever Been Given, Personal and Professional?
Don’t be the last to arrive at the party – all the fun has already been had (personal and professional!).
What Does Your Life Outside of Fund Management Look Like?
As a relative new-arriver in London, weekends are spent exploring all this wonderful city has to offer from the beautiful parks, to art and culture, and world class sport.
