James Brown of BlackRock, Kevin Johnson of Dodge & Cox, and Mike Soekoe of Foord Asset Management comprise the global equities panel, which looks at a number of factors having an impact on how they manage their funds.
Johnson says Dodge & Cox has a positive view on oil over the next five years, believing the supply and demand imbalance will correct itself eventually – but with opportunities being created now. Brown counters that BlackRock has a more neutral view, with Soekoe of Foord in agreement. BlackRock has reduced exposure in this category since the end of 2014, removing companies at risk of having to cut dividends.
Foord has no exposure to South Africa within its global equity fund, and expresses concern over the country and African region in general, citing labour issues, policy uncertainty and the twin deficits as detractors within South Africa.
BlackRock also has no exposure, preferring to focus on companies in the developed world, although in many cases they will generate revenue in countries other than the country in which they are domiciled.
While Dodge & Cox has both direct and indirect exposure to South Africa, with a relatively large holding in Naspers over the last 10 years. Kevin Johnson also noted that they have a position in MTN, as much of the bad news has already been priced into the share.
Responding to the question of how non-economic events affect portfolio planning, BlackRock re-iterates its bottom-up approach and the importance of understanding the fundamentals of the business.
Foord currently has a positive outlook on the global economy, saying they’re happy with conditions in the US, Europe is starting to look better and although China is slowing, it is still growing.
“Noise affects sentiment. It stalls investment which creates volatility,” says Soekoe. The company expects these economies to improve after another few months of volatility. Dodge & Cox agrees with Foord’s view of the global economy, stating that a country’s economy is more important than its politics.
Dodge & Cox currently sees a number of investment opportunities – some value-driven, such as Hewlett-Packard, which are generating free cash flow and some on growth prospects, - Alphabet (Google), which is reasonably priced but no longer cheap.
Alphabet is also one of Foord’s biggest holding. Soekoe highlights artificial intelligence, driverless cars and robotics as examples of the type of technology diversification that investors can’t access in South Africa.
Dodge & Cox sees Naspers as a value stock rather than a technology stock and believes the company will continue to grow, having strong internet properties around the world.
Foord highlights insurance companies and banks in China as an interesting part of its portfolio. Consumers in China are becoming wealthier and want to save for the future. They also cite short-term insurance as a market with a lot of growth potential in China.
BlackRock singles out financials, saying that US firms are in a much improved state since the global financial crisis. “They’re looking more like utility-type businesses with a regular revenue stream,” says James Brown.
Dodge & Cox sees BR Malls, a Brazilian shopping mall owner, as a good investment opportunity, mainly based on their strong management structure and the fact that they are well positioned to take advantage of future potential growth.
“We still like the US. With interest rates normalising in the US and demand in China slowing, the emerging market theme is no longer as enticing to investors as it was previously. However, we remain positive on China because of the growing population,” says Soekoe.
BlackRock’s Brown says that investors tend to gravitate towards a few high-quality businesses in emerging markets. “We see emerging markets as more attractive and cheaper. But even though the market is cheap, the number of companies we’d invest in, is small,” he said. “It all comes down to the hunt for yield,” he explains.
