Looking back, gazing forward


Why should we have a positive view of global markets in 2019?

On his recent trip to Australia we asked Danton Goei, 20-year veteran of Davis Advisors[1] and Portfolio Manager of the PAN-Tribal Global Equity Fund, to share his insights about what happened to global markets in 2018 and why he has a positive view about 2019.

Q: Most investors and advisers are probably thinking – “what the hell happened to markets in 2018?”

A: Well, 2018 was certainly a year of surprises for the market. It was very much a year of two halves; the second half saw a sharp divergence between the performance of the stocks we own and the fundamental results of those underlying businesses.

The market for the calendar year was only down 4% when you factor in dividends, yet from peak to trough, it delivered negative 19%. To top it off, more than 9% of that loss occurred in a single month, December. It was in fact, the worst December in 70 years.

It was different, however; periods of poor performance are typically caused by values declining, or value destruction and that’s not what happened here. Prices went down, performance lagged…but values grew, earnings increased, and balance sheets strengthened!

The good news is that this was a correction during a strong expansionary period…so what that means is stocks ended the year much cheaper than they started. So, when we focus on the fundamentals, it gives us optimism that the portfolio is well positioned.

Q: We are three months into the new year, what does 2019 hold?

A: As bottom up stock pickers, for us it is always about a company’s fundamentals. While the market has got off to a strong start in 2019, we firmly believe “selectivity” is going to matter now, more than ever. We say that because there are areas of the economy and of the market that are stretched very thin. However, overall valuations look fairly attractive and fundamentals look reasonably good.

To put some context around how we are currently investing in this market, the PAN-Tribal Global Equity Fund currently has a forward price earnings ratio (PE) of 11.2x versus the benchmark[2] PE of 13.8x. The five-year earnings per share (EPS) history of the companies in our portfolio has shown a growth rate of 25% compared to the benchmark growth rate of 13.5%. That sets us up very well going forward. Of course, there can be individual risks with any of the companies we own, but when we look at the portfolio overall, we are very optimistic given our current position.

In our view, the portfolio is “spring-loaded” for recovery once the focus shifts to business fundamentals rather than macro-driven sentiment. We think negative news is mostly priced in, particularly in those companies we own.

Q: From your perspective, where are the risks in the market?

A: Investor behavior is an area of concern. When investors experience a downturn in markets, such as December last year, they tend to feel safe in the investments that protected them during the previous downturn.

So, what do they do?

They rush into stocks that have low volatility – consumer companies, health care companies, utilities. We examined the valuations of these companies and found on average, the top of the low volatility index is trading at around 22x earnings. On top of high valuations, many of these companies have increased their debt by approximately 40% over the last five years, while growing at only 1-1.5% over that period.

History has taught us that when companies begin to cut dividends, a stock trading at 22x earnings, with no growth, record margins and high debt presents a dangerous combination and appears to us to be a microbubble.


[1] Davis Advisors is the sub-investment manager of the PAN-Tribal Global Equity Fund.
[2] MSCI All County World Index (ACWI
Important Information: The information included in this article is for use by sophisticated investors and investment professionals only. No account has been taken of the investment objectives, financial situation or particular needs of any particular person. This information is provided for general information purposes only and does not contain investment recommendations nor provide investment advice, nor is it intended to take the place of professional advice. Investors should not take action in reliance on information contained in this document. We strongly encourage investors to obtain professional advice and to read the Fund’s current Product Disclosure Statement (PDS) and the Reference Guide which forms part of the PDS before making any investment decision. Investors may invest in the Fund through a licensed financial adviser or an investment platform using the PDS for that platform which can be obtained from the operator of the platform.Equity Trustees Limited (Equity Trustees), ABN 46 004 031 298  AFSL 240975, is the Responsible Entity for the PAN-Tribal Global Equity Fund (the Fund) ARSN 602 036 153 and PAN-Tribal Asset Management Pty Ltd (PAN-Tribal), ABN 35 600 756 241 AFSL 462065, is the investment manager and the issuer of this information about the Fund. PAN-Tribal has appointed Davis Advisors as the sub-investment manager of the Fund. State Street Australia Limited is the third party custodian and administrator of the Fund. None of PAN-Tribal, Davis Advisors, Equity Trustees nor any of their related parties, their employees or directors nor any other person guarantees the repayment of capital or the performance of the Fund(s) or any particular return from the Fund(s). No representation or warranty is made concerning the accuracy or reliability of information contained in this article, nor liability accepted to any person who relies on it. Past performance should not be taken as an indicator of future performance and is provided for illustrative purposes only.

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