Ms Ross joins after a 15-year career at Magellan Asset Management where she was most recently Head of Research, responsible for the management of a 30-person global research team.

Before joining Magellan, Ms Ross worked at Ausbil Dexia from 2003 to 2007 where she covered the Financial and Consumer sectors. Prior to Ausbil, she commenced her investing career at Commonwealth Investment Management in a strategy and research role from 2000 to 2002.

Jacob Mitchell, Antipodes’ Chief Investment Officer, commented on the appointment.

“Vihari is a very knowledgeable investor who has covered global equities over many years and through various market cycles. Her appointment as a Portfolio Manager at Antipodes will further bolster our experienced portfolio management team at a time when active management is arguably more important than ever”.

Ms Ross said Antipodes’ investment approach and respected team attracted her to the role.

“I have always had great respect for the client-centric Antipodes team, and the firm’s unique pragmatic value investment style. I’m thrilled to be joining such a dynamic and forward-thinking firm.”

Ms Ross holds a Bachelor of Commerce (Actuarial Studies and Finance) and a Master of Commerce (Finance) from the University of New South Wales and is an Associate of the Institute of Actuaries.

Her appointment follows the recent expansion of Antipodes’ investment offerings.

In January, the firm established the Antipodes Climate Delta Fund, led by portfolio manager Max Shramchenko with Graham Hay as Co-PM. The strategy aims to invest in attractively valued global companies exposed to climate impact mitigation and the transition to net zero.

Antipodes has also recently launched the Antipodes Global Opportunities Fund – a small and mid-cap global equities strategy managed by James Rodda as Lead PM and Nick Cameron as Co-PM.

Over the past year (to end February 2023), the Antipodes Global Fund – Long outperformed its benchmark by 6.9% (delivering 5.6% vs -1.3% for the MSCI All Country World Net Index). Since its inception in July 2015, the value-style fund has delivered 9.7% per annum vs 9.1% for the benchmark (to end February 2023).

The post Vihari Ross joins Antipodes appeared first on AdviserVoice.

Jacob Mitchell

Sydney-based global equities investment manager, Antipodes, is pleased to announce its appointment by leading industry super fund, HESTA, to manage a major global equities mandate.

The approximately $1 billion mandate for the Antipodes Global Long Strategy was awarded following an extensive due diligence process.

Antipodes’ Chief Investment Officer, Jacob Mitchell, said the appointment is a testament to Antipodes’ holistic approach to identifying value across global equity markets.

“Our pragmatic value style has delivered positive outcomes for clients by helping to preserve and ultimately grow capital during periods of market volatility, such as those we have recently experienced.

“During a period in which investors are once again being reminded about the importance of starting valuations, I thank HESTA for recognising the effectiveness of our pragmatic value approach and selecting our team to help manage its members’ superannuation.”

Pinnacle Investment Management (Antipodes’ distribution partner) Director of Institutional Distribution, , also commented on the appointment.

“As we have seen increasing concentration in global equity allocations, Antipodes’ differentiated value investing style will provide further diversification benefits for the broader HESTA portfolio and deliver sensible and aligned exposure to important areas of development such as decarbonisation, healthcare and digital connectivity.”

Steven Semczyszyn, General Manager – Growth Assets at HESTA said, “The appointment of Antipodes to the HESTA portfolio complements our broader portfolio mix. We are attracted towards Antipodes’ pragmatic approach to valuing companies and program of company engagement.

“We look forward to Antipodes helping HESTA to deliver strong investment returns for our members.”

The post Antipodes appointed by HESTA to manage global equities mandate appeared first on AdviserVoice.

Jacob Mitchell,

With volatility rearing its head in October, the question remains as to whether this will normalise, or increase towards year end and into 2019.

In the US, against a backdrop of relatively subdued inflation, growth is soaring, with Trump’s domestic policy analogous to burning all the furniture in the room. Whilst some indicators, such as the corporate profit cycle, industrial production, unemployment and consumer confidence suggest the economic cycle is maturing, residential/corporate investment and wage inflation is still at early or mid-cycle levels. The risk to the cycle is monetary policy, with an increasingly limited fiscal backstop.

Following the GFC, as policy rates neared zero, the Federal Reserve (Fed) actively targeted a flatter yield curve, rebalancing portfolios towards risk and duration, with the wealth effects of asset price inflation a key transmission mechanism to the real economy. The expansion of the Fed’s balance sheet flooded the US banking system with reserves such that to maintain control over the target rate of interest, the Fed began paying interest on excess reserves.

The Fed’s path to normalisation is as much about allowing the market forces to dictate the shape of the yield curve as it is about managing the target rate in-line with inflation. Allowing the balance sheet to shrink – Quantitative Tightening (QT) – is the strategy to achieve this, though the risk is that at some point we transition from a banking system with excess reserves, to one where reserves become scarce. As the balance sheet contracts and reserves are destroyed, the banking system will be required to compete for liquidity. The point at which this occurs, and the Fed reaction function is a matter of substantial debate.

The requirement for reserves in the US banking system is now structurally higher, meaning the Fed may not be able to safely reduce their balance sheet by much without provoking strains within the system, and with it, heightened volatility across all asset classes. Should this materialise sooner than expected, and the Fed struggles to navigate the liquidity driven turbulence that may arise as consequence, the ability of the Fed (and other central banks) to pursue QT to its end may be in doubt, and with it a return to the flatter yield curve targeting regime of the past decade. For equity investors, this environment favours the status quo – a stylistic preference for ‘structural growth’ or ‘quality’ at any price.

However, a successful (even if turbulent) implementation of QT, in conjunction with reduced bond buying by other central banks, is likely to steepen the US yield curve as the influence of central banks wane, the rate hike cycle matures and the Fed risks clamping down on growth. Whilst the market has typically imputed weaker growth as meaning further balance sheet expansion and yield curve compression, a sustained and gradual Fed run-off is likely to alter this dynamic, with the natural lever of the Fed to reduce policy rates before scaling back on QT at the risk of damaging its credibility. In this environment, a stylist preference for low multiple stocks could evolve.

Until the process of QT becomes more entrenched, the more immediate implication of the Fed enduring with its commitment to tightening is a flatter, potentially negative US yield curve, and without a rebound in European growth and/or a reversal of Chinese regulatory tightening, the risk of a Fed policy mistake is very real. This risk may be exacerbated by the inflationary nature of Trump’s tax cuts and trade policy though somewhat offset by a stronger dollar, accelerating the need to tighten.

Given a capital market structure that has changed profoundly post GFC, with central banks and passive liquidity acting as shock absorbers to risk assets more broadly, the progression of QT is likely to trigger increasing volatility across all asset classes.

Longer term, we expect a successful implementation of QT to reverse the distortions of the low rate and flatter yield curve environment that has characterised the prior decade.

Socio-macroeconomic overview

Today’s paradigm of free trade can be traced back to the early post-war period. Following harmful trade protectionism which saw global trade fall by ~65% during the Great Depression, the General Agreement on Tariffs and Trade, in operation since 1948 and superseded by the World Trade Organisation (WTO) in 1995, created the environment in which tariffs tumbled from an average of ~40% in 1947 to ~4% in 2016. The scaffolding of treaties, institutions and laws now supports an interconnected global economy – an underlying principle of economic development facilitating greater utility and welfare.

The mercantilist economics policies of US President Trump hope to “bring back American jobs” through a series of strategic trade policy decisions – withdrawal from the Trans-Pacific Partnership (TPP), renegotiation of the North American Free Trade Agreement (NAFTA) and the implementation of tariffs on foreign (particularly Chinese) goods. Framed in the context of increasing domestic jobs and repatriating profits from foreign firms to domestic competitors, these policies make sense – in theory.

Assuming no reciprocation, tariffs raise the price of foreign goods and services, shifting demand for imports to domestic producers, while exports remain untouched. This in turn increases domestic output, all else equal. The problem with this theory is the payoff accrues to one nation at the detriment of another – put another way, every nation is incentivised to retaliate.

Historical evidence suggests protectionist policies have a negative impact on the volume of world trade. While the protectionist mindset for all is more rational than a protectionist mindset for some, the outcome is sub-optimal in aggregate, with the role of the WTO to police the incentive for nations to deviate towards protectionism.

A reversal in globalisation would steer the global economy into uncharted territory, with the real risk of trade uncertainty sapping confidence and leading to a deferral in investment.

To date, the US has announced ~$250b of tariffs on Chinese exports to the US, roughly half of 2017 exports. China has responded measuredly, announcing ~$110b of tariffs on American exports to China, or ~85% of 2017 exports. Given China’s relatively greater reliance on US trade and limited manoeuvrability as tariffs escalate, the likely outcome is a more strategic response, such as increasing domestic subsidies while seeking stronger bonds with other nations.

China’s greatest strength in winning allies might be that its domestic demand remains relatively robust, allowing it to import more from other markets. Emerging markets, for example, have increased their goods exports to China from ~2% to ~15% since 2002, while exports to the US have declined from ~25% to ~15% over the same period.

Despite the People’s Bank of China (PBOC) lowering the reserve rate requirement for banks three times this year, unleashing tax reform and infrastructure stimulus, domestic policy remains tight as China remains committed to working off the excesses of the prior loose environment through a combination of macro-prudential property related policy and restrictive banking regulation. This may reverse should the trade war continue to escalate, to the benefit of domestic facing Chinese and European equities.

Opportunistically, China may pursue trade deals Trump walks away from. Following the ratification of the new TPP, Japan has been gazing eastward towards the Regional Comprehensive Economic Partnership (RCEP), whose members account for roughly half of the world’s population and more than a third of its GDP and global trade, almost twice that of the TPP. Despite the negative backlash to their outward investment profile, China will be well served to maintain high levels of foreign direct investment. In 2016, Chinese investment in the European Union (EU) jumped to nearly €36b from €2b in 2009, with Europe increasing its share of Chinese FDI from a fifth to a quarter. Somewhat cynically, one could assert that much of this state-backed investment speaks of China’s longer-term strategy to keep Europe from helping the US contain its rise.

As trade tensions continue to build, the probability of a miscalculation or provocation rises.

Sustained confrontation, for example, could result in a further weakening of the Yuan to offset tariffs or even damage to US commercial interests in China. US companies that are vulnerable to Chinese confrontation include those with China-dependent supply chains or that sell products in China with readily available substitutes such as Caterpillar, Apple and General Motors; though, as the US Department of Commerce’s now lifted ban on US companies selling goods to ZTE demonstrated, it too can inflict damage on national champions. Post November’s mid-term elections, sanity may prevail with Chinese authorities keen to de-escalate.

Looking ahead to 2019

October 2018 saw a sharp reversal in the outperformance of expensive ‘structural growth’ or ‘quality’ at any price, with extreme policy settings in developed markets leading to severe herding in these styles.

The key question for 2018 and beyond remains to what extent can the benign environment persist? Putting aside trade wars and policy missteps, whilst the US growth environment is unlikely to accelerate much from here, the combination of fiscal stimulus and the easiest US financial conditions since the Global Financial Crisis should sustain growth at current levels for longer. However, we believe the unusually favourable goldilocks combination of accelerating growth and tepid inflation experienced in 2017 will not repeat. Instead, normalisation of interest rate policy will likely upset the rhythm with more volatile and less forgiving markets.

Given the divergent risks of US monetary tightening, the Fed reaction function and the global growth outlook, investors should focus more than ever on uncovering sources of idiosyncratic alpha rather than relying on momentum or passive beta. In this sense, we’re encouraged by the high level of valuation dispersion within and across markets as indicative of broad pragmatic value opportunities, both long and short.

In this sense, broadly both North American and Developed European equities look expensive. Given that these regions represent ~77% of the MSCI ACWI, investing in the global index is unlikely to lead to a great long-term return outcome. Comparatively, both Developed Asia (Japan, Korea and Taiwan) and EM stand out as regions with greater return potential.

By Jacob Mitchell, Founder and Chief Investment Officer

The post Global equities outlook for 2019 appeared first on AdviserVoice.

Jacob Mitchell,

Leading global equities investment boutique Antipodes Partners has had its Global Long-Short Strategy added to Colonial First State’s FirstChoice platform.

Antipodes’ assets under management (AUM) has increased to approximately A $7 billion in just three years since its formation – with around half being sourced from institutions and half from retail investors (including SMSFs and high net worth individuals).

Antipodes Partners is a global asset manager offering a pragmatic value investment approach.

Established in 2015 by Jacob Mitchell, Antipodes Partners seeks to take advantage of the market’s tendency for irrational extrapolation, identify investments that offer a high margin of safety and build portfolios with a capital preservation focus.

Antipodes’ Global Long-Short Strategy (’Strategy’) invests in a select number of attractively valued companies listed on global share markets. Net equity exposure ranges from 50-100% but has typically been around 60% since inception. Equity shorts and currency positions may be used to take advantage of attractive opportunities, offset specific unwanted portfolio risks and provide some protection from negative tail risks. Derivatives may also be used to amplify high conviction ideas.

Since inception (1 July 2015), the Global Long-Short Strategy has exceeded its Benchmark (MSCI All Country World Net Index in USD) by 12.5%, delivering a total return of 41.8%, as at 31 May 2018.

The post Antipodes Partners fund added to Colonial First State’s FirstChoice investment menu appeared first on AdviserVoice.

Jacob Mitchell,

Investors can expect continued market volatility in the coming months, according to leading investment boutique Antipodes Partners. Though there are several things they can do to reduce it within their portfolios.

“The start of the year saw investors initially grapple with concerns around accelerating inflation and rising interest rates,” noted Jacob Mitchell, Founder and Chief Investment Officer of Antipodes. “This was followed by unease around the US and China trade tiff and its potential to morph into a negative global growth. The quarter was also unusually challenging for some of the leading technology names.”

Mr Mitchell added: “Now, central banks have somewhat cornered themselves. Increasingly, political and economic pressure to normalise interest rates or withdraw stimulus is likely to further trigger volatility and lead to wider credit spreads. The European Central Bank and Bank of Japan still make up half of QE assets, making an exit a potentially bumpy ride. Our analysis suggests that US high yield or junk bond issuers are amongst the most vulnerable to this risk.

“The consensus is that we are in the later stages of the US corporate credit cycle.  However, higher leverage as a result of a significant loosening in credit standards is sustainable as base rates are low and a recession is not imminent.

“Though, in industries such as retail, media and telecommunications, the same forces that are underwriting the success of the mega-cap platform companies such as Amazon and Alphabet, are negatively impacting the smaller corporates increasingly caught in the cross-fire. Often, these smaller issuers are less likely to have access to fixed rate funding.

“The combination of US twin deficits and trade barrier rhetoric will clearly result in ongoing volatility,” Mr Mitchell forecasts.

“The key question for 2018 remains to what extent can the benign environment persist? Putting aside trade wars and policy missteps, the growth environment is unlikely to accelerate much further.

“However, thawing financial conditions and pending fiscal stimulus can sustain growth at current levels for longer.

“Easing financial conditions are a key pillar of growth and current US conditions remain the easiest since the global financial crisis and should support growth above trend for the remainder of the year.

“We believe the unusually favourable goldilocks combination of accelerating growth and tepid inflation experienced in 2017 will not repeat.

“Instead, normalisation of interest rate policy will likely upset the rhythm with more volatile and less forgiving markets.

“Last quarter, we warned of excessive investor crowding into structural growth winners and this quarter many technology names underperformed. In a higher interest rate environment, the market will become increasingly less tolerant of such biases.”

Looking forward, Antipodes observes several opportunities as well as some challenges:As the rally in Chinese growth sensitive equities has played out over the past two years, Materials and Industrials outperformed and, though Energy rallied late in the year, it remains very cheap by historical standards.
Though Financials significantly outperformed in the first half of 2017, the sector remains cheap by historical standards with sentiment and profitability expectations weighed down by macro-concerns, low rates and yield curve compression.
Domestic Cyclicals are also cheap by historical standards, especially strong incumbent retailers where the market is potentially underappreciating the brand equity and/or a successful adaptation to online reality.
Interestingly, in a market that until recently has paid up for yield – most intensely reflected in the North American Infrastructure sector – traditional yield sectors such as Telecommunications have de-rated, coinciding with the apparent value of good yield.
Consumer Staples were the ‘expensive defensives’, once enamoured for their perceived Profitability and Growth characteristics, that have now underperformed since the beginning of 2016. However, they still remain one of the most expensive sectors and in many cases structural pressures, such as substitution by private label, are intensifying.
Healthcare has underperformed to the point that relative value has appeared. However, healthcare related businesses will continue to be pressured by the public and governments grappling with affordability given decades of high cost inflation.
While Technology appears expensive on a more structural view of valuations, we guard against comparisons to the 1999/2000 tech bubble. Growth as a style is currently pervasively expensive across the global market, not just in Technology. While real structural change (cloud, social, virtual reality, media streaming, big data, autonomous driving, etc.) has underwritten the outperformance of the sector, due to their sheer size risks are building for the Titans of Tech, including:Tax and regulatory risk arising from increased scrutiny from governments around the world due to their influence and role in society, particularly around managing sensitive information.
Intensifying competition, whether it’s Amazon and Netflix competing on content streaming or Amazon’s Alexa threatening Google’s core search business with its voice search capabilities, the titans are bumping heads. Likewise, Google is encroaching on Apple by focusing on its own smartphone and Microsoft is attacking Amazon’s AWS cloud business with its successful Azure platform. Related to this is the growing capital intensity of many of these businesses as they make heavy infrastructure investments in compute capacity required to handle increasing artificial intelligence workloads and video streaming demands.

Mr Mitchell suggests that “if the current cyclical rebound in global growth continues, long-term global interest rates will be forced higher, triggering a rotation out of expensive longer-duration exposures into out of favour cyclical stocks”.

Conclusion

“The general uptrend in the broader equity market seems set to continue given economic data globally remains robust and central banks very accommodating. However, the blind assumption of unending low rates is a dangerous one,” said Mr Mitchell. “As a result, we simplistically see two likely scenarios:1 – Growth continues to surprise to the upside driving greater urgency from central banks to normalise policy. To minimise disruption to short-term funding markets, tapering would likely focus on the long-end of the yield curve leading to a potentially self-reinforcing pro-growth steepening, resulting in a significant increase in bond volatility and headwinds for the crowded/expensive low volatility, bond proxy and growth/quality equity exposures.

2 – Growth disappoints due to policy tightening by China or the US In this scenario, credit volatility would spike triggering a major sell-off in credit sensitive equities regardless of their duration, leading to a repeat of the 2015/16 commodity high yield melt-down which ended up spilling over into non-commodity exposures.
Conversely, the inevitable central bank response would extend the illusion of stability and amplify the imbalances with a continued melt-up in the low volatility, bond proxy and growth/quality equity exposures.

Antipodes Partners’ investment goal is to build portfolios with a capital preservation focus from non-correlated clusters of opportunity. “In our long investments we seek both attractively priced businesses (margin of safety) and investment resilience (characterised by multiple ways of winning), with the opposite logic applying to our shorts, i.e. no margin of safety and multiple ways of losing. While the investment case will always be predicated on idiosyncratic stock factors such as competitive dynamics, product cycles, management and regulatory outcomes, we seek to amplify the investment case by taking advantage of style biases and macroeconomic risks/opportunities.

“Given the divergent risks that the above two scenarios represent, investors should focus more than ever on uncovering sources of idiosyncratic alpha rather than relying on momentum or passive beta.

“In this sense, we’re encouraged by the high level of valuation dispersion within and across markets (region/sector/factor) as indicative of broad pragmatic value opportunities, both long and short.”

The post Global equities outlook – focus on alpha appeared first on AdviserVoice.