Garry Laurence
Rising global interest rates, political uncertainty and security concerns are creating opportunities for investors to gain exposure to defensive sectors such as healthcare and consumer staples, according to Perpetual Investments.
Garry Laurence, Global Equities Portfolio Manager at Perpetual Investments, said upcoming monetary policy tightening in the US and the unwinding of the monthly €60 billion European Central Bank bond buying may lead to increased volatility in equity markets.
“A period of historically low interest rates across the globe has led to a repricing of risk and a subsequent inflation of asset values across many markets. With trillions of dollars of bonds now trading at low yields, future shifts in official interest rates have the potential to heavily impact asset valuations,” Mr Laurence said.
Despite the uncertainty, Mr Laurence said international shares are an important element of any well-diversified portfolio.
“The current environment only reinforces the need to focus on the underlying earnings trajectory and free cash flow of a business. Over time, the stock prices will follow this trajectory.”
The Perpetual Global Share Fund delivered a total return of 16 percent in the 2017 financial year, outperforming the MSCI World Index benchmark by 5 percent.
The fund’s portfolio has strong exposure to the healthcare and consumer staples sectors, which represent two significant global investment opportunities in the current environment, according to the global equities team.
Consumer staples – recognised brands
“For some time we have been saying the consumer staples sector looks expensive in general. Despite this we have managed to buy some high quality companies with strong brands at opportunistic prices,” said Mr Laurence.
The fund has recently bought into European consumer staples stocks such as Nomad Foods and Britvic, increasing the fund’s weight in the sector to 12 per cent.
“The value of active investing is that even in sectors that may look expensive we can still identify companies like Nomad and Britvic – companies with strong management, solid balance sheets, consistent earnings growth and strong free cash flow.”
Health stocks – a value opportunity
Another major investment opportunity lies with the healthcare sector where stock prices have been weighed down by delayed attempts to reform healthcare and calls for lower drug prices.
“These announcements, and lack of action, have affected the healthcare sector. While political rhetoric around the Affordable Healthcare Act is likely to fuel increased volatility, any further weakness should be seen as an opportunity to find value in the sector, which is set to benefit from significant structural and demographic tailwinds over the longer term,” Mr Laurence said.
The Fund’s healthcare holdings include pharmaceutical company Sanofi Aventis and drug distributor McKesson, stocks expected to benefit from significant market growth as the world’s population ages.
The Fund currently has around 15% of its portfolio invested in cash and fixed interest, giving it capacity to take advantage of value opportunities arising from any weakness associated with temporary fluctuations in markets over coming months.