Global investing: Don’t follow the crowd
When it comes to international investing, it’s easy to get caught up in the latest trend. Instead, you may want to do the opposite.
By: DAVID ISRAELSON
Date: April 28, 2016
Investors have a tendency follow the latest trend, especially when it comes to hot global markets. But while international investing is important, the last thing anyone should do is buy into a country just because everyone else is.
In fact, investors may want to do the exact opposite, says Patrice Quirion, lead manager on Fidelity Investments’ Global Concentrated Equity Fund.
He runs an unrestricted global mandate, meaning he can look for opportunities anywhere around the world. Because he has so much to look at, he has to make sure that his approach is defined, he says.
“What I look for are high-quality, predictable companies, and I want to pay a reasonable price for those,” he explains.
In many cases, this leads him into areas where no one else wants to go.
“I can be a bit contrarian at times,” says Mr. Quirion.
Over the past few years, high-quality global stocks have tended to be overvalued, which leads to prices that aren’t sustainable long-term, he says. That doesn’t mean, however, that there are no opportunities.
“I have to go into sectors or geographies that are a bit out of favour,” he says, mentioning Mexico and Brazil, for example. Yet while he talks about countries, he does admit that, when it comes to investing, international borders aren’t as big a deal as they used to be.
Global investing has become increasingly dominated by big multinational companies, says Mr. Quirion, which are present in more and more markets and taking greater market share in the majority of industries.
The result is that companies are less affected by whatever’s happening in their home country, and more by what’s occurring in the world at large.
“More and more, companies are affected not by the economic situations within their own borders, but by global macroeconomic trends and foreign-exchange movement,” he says.
At one time, fund managers paid more attention to where a company’s headquarters were based, “but it’s a little less relevant now,” he explains.
Global markets have been – and continue to be – particularly volatile this year. Investors are watching China dial back from years of ultra-robust growth, while the Eurozone is holding its breath in anticipation of Britain’s scheduled June 23 referendum on whether to remain in the European Union.
International investors, though, are particularly concerned about the Federal Reserve’s plans to hike interest rates. America’s overnight rate rose in December for the first time in years by 25 basis points to 0.5 per cent.
In early April, Federal Reserve chairperson Janet Yellen said, “We think a gradual path of [further] rate increases will be appropriate.”
Rate hikes tend to drive volatility, affecting international exchange rates and country and regional economic outlooks. In March, The Economist noted that “the tightening of monetary policy in America has reduced the appetite for financial risk-taking beyond its shores.”
Until about five years ago, monetary policies around the world were more or less synchronized, and global economies were moving together, too, says Mr. Quirion. Now it’s more uneven, with stronger growth in some parts of the world compared to others.
“This is clearly something to think about when building a global portfolio,” he says.
One global trend that he’s seeing is higher exposure to companies catering to U.S. consumers and to businesses in America’s health-care and technology industries.
At the same time, with commodities suffering, there’s been a flight to safety toward U.S. currency, he says.
Just because everyone else is looking to the U.S., though, doesn’t mean he’s jumping into the country.
“I look toward the opposite of those trends when I feel they are starting to get stretched,” he says.
A few quarters ago, Mr. Quirion wasn’t holding any emerging-market operations, but that’s changed as interest in developed markets has heated up.
“I have been adding to emerging markets compared with having no exposure to them before that,” he says.
He’s since added stocks from Mexico, Brazil and China to the Global Concentrated Equity Fund, which he has been managing for two and a half years.
“It’s not a huge part of the portfolio, but it’s overweight versus the index,” he says.
He’s also adding exposure to companies tied to commodities, which is another contrarian play. For investors, the benefits of owning some of these global companies are not always immediate, but he thinks they should pay off.
“[I look for] companies with stellar balance sheets and limited competition – profitable businesses even when conditions are challenging,” says Mr. Quirion. “I feel that such companies will make it through the cycle even stronger, without bringing risk for the fund-holders.”
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