A world of contrasts: Davis Advisors

Peter Sackmann

Peter Sackmann

Speaking to financial advisers at a recent Pan-Tribal lunch, Peter Sackmann of Davis Advisors took attendees on a world tour, looking at markets, sectors and stocks in each region.

Peter Sackmann, CFA, analyst and portfolio review committee member at Davis Advisors (Davis) told attendees that the US market had been hampered by twin uncertainties – a divisive and contentious election campaign, and the timing of the tightening cycle expected by the US Federal Reserve (the Fed).

“Once we get past the election cycle, the business climate is good; we are encouraged by signs of life across industries,” commented Sackmann.

“Rarely does an election dictate how good or bad a company is.”

While US growth is uneven, Sackmann pointed to a range of factors that support a positive outlook.

“When you have unemployment under 5% (it was 10% during the GFC) and a broader-based earnings profile – companies reporting decent earnings, if not record earnings – you have a solid growth foundation for the future.

“It’s a tale of two markets right now in the US – the S&P has done pretty well this year, but its spoils are not treating everyone evenly. Sectors known for paying high dividends have outperformed, but are now expensive. Out of favour sectors look more attractive.”


On the other hand, the outlook for European companies isn’t so rosy.

“Europe is challenged in a number of ways,” said Sackmann, outlining the issues as follows:

–      Anaemic growth – this reflects relatively soft employment numbers, country by country. Unemployment – and ‘underemployment’ – among young workers is much higher than the headline averages.

–      The negative interest rate experiment has resulted in approximately US$14 trillion of bonds globally trading at negative interest rates; the result is they cease to have the features and benefits of real bonds

–      Rising inflation could cause a whipsaw effect in bond markets and result in capital flight from the asset class.

”Davis has few investments in Europe at the moment. This is not a result of Brexit, rather a reflection of the low growth environment and the impact this has on earnings growth, coupled with full valuations,” said Sackmann.

In Asia, Davis retains a strong focus on the Chinese consumer.

“China is more supportive of entrepreneurship than other parts of Asia. Owner operators in China are now among the best in the world, a significant move from 10 years ago,” said Sackmann.

“However, you have to go into China to assess companies, as it is not a level playing field. For example, Amazon spends around US$500 million to $1 billion a year trying to get into China and have just 1.5% market share after years of effort.”

There are approximately 50 markets in the global economy and Davis aims to find the best in terms of liquidity, transparency of financial information, and professionalism of management. At the margin, they also look to invest in countries that support, encourage and celebrate entrepreneurs and capitalist success.”
The Pan-Tribal Global Equity Fund, managed by Davis Advisors, currently invests in 48 companies across 13 countries. While regional factors are an important input into stock selection, the strategy that underpins the Pan-Tribal Global Equity Fund is a fundamentals-based, unconstrained approach, with bottom-up research conducted in-house. The portfolio holdings represent high conviction ideas from a universe of global investment opportunities.

Colin Woods, Pan-Tribal CEO commented, “I have been very pleased with the traction the Fund has in the market; it’s available through most of the major platforms and is getting supported by a number of key financial planning groups.”

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