CEO Sessions: Brighter future investing with Julian McManus

Ali Dibadj: Hi, everyone. We’re here at the UK Investment Conference. Plenty of folks here, and I’m joined today by Julian McManus, our portfolio manager on Global Equities. Julian, you’re about to get on stage and tell the audience something. What are you going to tell us?

Julian McManus: Well, my main message is that this is a great time to be an active investor. Being a bottom-up stock picker, there are a lot of opportunities all around the world and it feels like we’re moving from thematic investing to a market where bottom-up stock picking is going to be rewarded.

Dibadj: So where do you see the most interesting opportunities? You cover the world. Where do you see opportunities?

McManus: So well, because we’re standing at the turning point of policy in many ways, right. So fiscal, trade, defence, all these geostrategic tides are turning. And with that comes higher interest rates because a lot of these policies are inherently inflationary at the margin. And so, with higher rates comes a higher cost of capital and that makes it more important for investors to focus on returns beating their cost of capital. And as a result, we see great opportunity around the world as volatility gives us disconnects across different markets. And so, for example, defence is an area that’s historically been very slow growing and defensive. We think actually growth is going to accelerate there, and there are some very attractively-valued defence companies such as BAE (Systems) in the UK, which are really not valued for those faster growth rates and higher margins.

Similarly, elsewhere in the world, we see great opportunities in Japanese rate sensitives where inflation is still running hot, and the central bank is yet to catch up and normalise their interest rate policy. So, it’s very diverse and again, bottom-up stock pickers are likely to get rewarded rather than just pushing the same themes that we’ve seen for the last two years.

Dibadj: Julian, why is this a great time for global equity investing?

McManus: Because there’s a lot of investment returns on offer outside of just following the same Mag 7 strategies that a lot of people have defaulted to. And although people have focused on the Mag 7 as driving returns, there are some important disconnects to point out within that. So, for example, Tesla and Apple traded extremely high valuations because flows have pushed those valuations higher. But we see disconnects elsewhere in the world where, for example, Toyota and TSMC (Taiwan Semiconductor Manufacturing Company) have just as exciting growth opportunities ahead, but trade at very different valuations. Tesla, you know, trades at 10x the valuation of, for example, Toyota and Apple trades at twice the valuation of Taiwan Semiconductor, even though they’re joined at the hip in the case of Apple and TSMC.

Dibadj: Well, you and your team have delivered incredible performance by doing that bottom-up analysis for our clients. We look forward to hearing what you’re going to say on stage and certainly look forward to getting you in front of our clients.

Bottom-up investing is an investment approach that focuses on analysing individual companies and their fundamentals, whereas top-down investors focus on the industry and economy.

Fiscal/Fiscal policy: Describes government policy relating to setting tax rates and spending levels. Fiscal policy is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.

Inflation: The rate at which the prices of goods and services are rising in an economy. The Consumer Price Index (CPI) and Retail Price Index (RPI) are two common measures. The opposite of deflation.

Valuation metrics: Metrics used to gauge a company’s performance, financial health and expectations for future earnings, eg. price to earnings (P/E) ratio and return on equity (ROE).

Volatility: The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. The higher the volatility the higher the risk of the investment.