Notwithstanding some macro concerns, particularly around inflation, two of GSFM’s Australian managers – both with long/short strategies – have painted a bright picture for 2021 and beyond for investors.
Munro Partners and Tribeca Investment Partners, growth managers which delivered returns of about 18 per cent for their equities long/short funds in 2020, appeared unfazed in an adviser webinar last week (January 19) about the expectation that cyclical stocks will return to favour soon in a rotation away from growth and towards value.
Both managers – Munro being global and Tribeca primarily Australian – are active stock pickers and agree with GSFM’s house view on the macro outlook, as described by Steve Miller at the meeting.
Miller, a consultant to GSFM on economic issues, is a well-known fixed interest specialist. “As an old bond guy, I’d like to focus on inflation,” he said. “If inflation doesn’t remain [low] we can’t know how markets will react… The bad news is that markets, mostly the risk markets, can become inured to the notion of any prospect of renewed inflation. There is an element of crying wolf in what’s said, but to continue with the analogy, the wolf turns up in the end.”
Market expectations about inflation had already started to creep up, he said, and arguably the rising commodity prices were coming to an end. The US actual inflation figure is currently 1.4 per cent but expectations are 2.5 per cent. With Europe, the actual rate is minus 0.3 per cent and the expected rate is plus 1.5 per cent (which would mean a bigger jump).
Nick Griffin, the CIO and a co-founder of Munro, said that 2020 had been a “great period” for the manager, whose biggest single area of focus was the structural growth associated with climate change. Its largest exposures are in that area, with eight stocks making up about 18 per cent of the portfolio.
“Climate will be our biggest area of focus for 2021,” he said. “It will probably be a trend for 20 years… China has committed to zero carbon emissions by 2050, Microsoft has committed to zero by 2050, BHP has committed to zero by 2050. It will cost an estimated US$21 trillion. This is the biggest single investment trend of my lifetime.
Munro, which has about A$4 billion under management, looks for structural growth in the stocks it picks, which Griffin said gave a greater chance of picking winners. “We look for structural growth of twice or three-times GDP.”
Other big positions included digital enterprise, in which the firm had five holdings, and high-performance computing (four stocks). The finance world was becoming digitalised, he said, hence the interest in crypto currencies.
“We focus on the next generation of growth. As we’ve said publicly, we like Hello Fresh and Spotify which we see as being at the start of the ‘S’ curve. There will only be a few winners and there will be lots of pretenders along the way,” he said. “We’d rather focus on that than a cyclical recovery.”
Jun Bei Lui, who runs Tribeca’s Alpha Plus long/short Aussie equities fund, said the manager was looking at five main themes for 2021. They were:
- Return to Work: changes in office utilisation; travel, with Asian domestic air travel already rebounding; surgical procedures and other medical normalisation; and, shopping centre visits.
- Reflation: not over the next 12 months but with activity picking up and government stimulus packages, inflationary pressure would build. Australian earnings had moved into an upgrade cycle which would continue this year.
- Dividends: will look “incredibly” attractive when they come back. Tribeca was expecting dividends, in aggregate, to rise by 30 per cent this year.
- Housing: would drive some of the returns, as building approvals had turned positive and prices in Sydney and Melbourne firming with a strong consumer market, and
- Structural growth players: which always command a premium. Current examples were Redbubble, Nuix, Afterpay and Seek.
Damien McIntyre, GSFM managing director, said the distributer and multi-affiliate firm had A$17.3 billion under management as at December 31. It recently launched an absolute returns ETF for Munro and had plans to take its other Australian manager, the institutionally focussed quant manager Redpoint, into the retail market.
GSFM’s four offshore-based managers are: New York-based Epoch Investment partners, LA-based Payden & Rygel, London-based Man Group, and Toronto and Boston-based Cambridge Global Asset Management.