Platinum chief calls time on growth stocks
Andrew Clifford offers mea culpa for missing the growth stock boom but warns a new playbook is now required.
Mentioned: Minebea Mitsumi Inc (6479)
The era of easy money is over, and investors should brace for a new investing regime that favours companies able to turn a profit today, according to Platinum Asset Management co-founder Andrew Clifford.
After 30 years of steadily declining interest rates, central banks are reversing course in a rush and ushering in an era where interest rates are likely to stay higher for longer, said Clifford at the Morningstar Investment Conference last Thursday. Without the updraft of easy money, valuations for loss making companies promising growth and profits years hence will continue to suffer. This new world will favour attractively priced value’ stocks, whose earnings are “here and now”.
Clifford, who oversees the $7 billion Platinum International Fund, singled out automakers, European banks and industrial companies such as Japan’s Minebea Mitsumi as likely to prosper in this environment.
Acknowledging Platinum had been slow to pay up for growth stock outperformance over the past decade, he warned investors risked big losses if they repeated the old playbook in a new era.
“For investors who have been around, you know, 25-30 years, many, including myself made the mistake in the last 15 years of not paying up enough for growth as rates came down,” he said.
“I think what we're potentially going to have in the next period of 10 years or more, is that as we adjust to higher rates, investors who have experienced investing in the last 15 years, […] I think the potential is to make the mistake of paying too much for growth.”
The flagship Platinum International Fund is enjoying its first year of outperformance since 2017 amid a broad rally in value stocks. The fund is down 2.8% as of 31 May, compared to an 11.6% decline for the Morningstar Global Total Market index. The fund continues to underperform over longer horizons. Platinum’s value-oriented fund targets companies trading at a discount to fundamentals and is more likely to own miners and industrial companies rather than US technology stocks.
Outperformance has yet to reverse months of investor withdrawals. Platinum reported approximately $209 million in net outflows for May on Tuesday, the second biggest month of losses in a year that has seen almost $1 billion pulled from the family of funds.
Jody Jonsson, an equity portfolio manager at the US$2.6 trillion Capital Group joined Clifford on stage last Thursday and struck a similar tone, drawing comparisons to the excesses of the early 2000s dot-com era.
“The current market environment to me feels a lot like the late 90s where we've had this sort of correction in the most highly valued growth stocks, the ones you know, as Andrew was saying, the ones where the earnings are very, very far out in the future, and yes, they got too expensive.”
However, others claim today’s bout of higher rates will fade quickly as economic growth slows, and central banks are forced to return to stimulus. Australia’s largest growth manager argued last month that the low interest rate world before the pandemic would soon return.
Bullish on China
A China hand stretching back to the 1990s, Clifford remained upbeat about the country’s equity market, saying China would remain “part of the world” and had a history of rebounding very strongly.
“That's for us as investors, that's where we look for opportunities,” he said in reference to the current economic slowdown.
Investors should look beyond the country’s high-profile ecommerce sector, added Clifford, noting the long-term growth track record of the financial sector.
The $3.7 billion Platinum Asia owns stakes in insurer Ping An Insurance Group, a retail financial services group. Clifford said the fund had also bought back into giants Tencent and Alibaba following bruising selloffs.
Rivals will eat away at Tesla
Clifford weighed in on the debate over Tesla, arguing investors are underestimating how much market share the electric car maker will lose as its competitors rapidly move into the space.
Acknowledging Tesla’s “extraordinary ,” progress, Clifford said he was uncomfortable with the company’s valuation and doesn’t “see a world where we only drive Teslas.”
“I would probably say I have a generous view of the sort of European auto companies and the Toyotas in terms of bridging that gap technology wise,” he says.
The electric car maker has fallen 40% this year, taking its price to earnings ratio from 146 in March to 97 in June.
Jonsson argued Tesla would continue to edge out competitors as newer rivals stumbled in the technology selloff and staid rivals failed to narrow the carmaker’s lead.
“I really don't think that [traditional automakers] catching up at a very quick rate if you think Tesla is actually advancing faster than they are catching up,” she said.
“A number of these kind of upstart competitors that are newly public, have had, you know, crash and burn performances in their stocks. And so, they're probably not going to be able to raise more money and so we actually think the competition is probably narrowing there,” she added.