Robert Swift, CIO of API Capital and portfolio manager of the Global High Conviction strategy, takes a brief look at what occurred in global markets through October and how it has affected the Tamim Global Equity High Conviction IMA
October saw a general and marked decline in equity markets. The USA fell approximately -7%, Japan -9% ,and Hong Kong -11%. We were due a fall in markets after a strong run over many years, but the extent surprised us. The global equity portfolio was defensively positioned and so outperformed the broader global equity markets. Numerous causes can be identified for the weakness but we think that equity market participants are realising that the era of easy money is ending and no equity 'taper tantrum' is going to cause a change of mind at the Federal Reserve this time. Given that it is not the mandate of the central bank to support asset prices we think this is a positive development but may cause pain or withdrawal symptoms. The last Chair of the Federal Reserve to act this way was Paul Volcker in the 1980s.
We still think equity risk is worth having but that the Value style will be more appealing than investing in companies with high expectations incorporated already into their ratings. Value has under performed Growth by an unusually wide margin in the last three years and mean reversion back to the benefit of Value is now more likely than ever - especially if we are right about central bank tightening. This means companies with good balance sheets, progressive dividend policies and earnings multiples that only require moderate growth will be seen as more attractive, and outperform.
We do not invest in broken businesses but ones which are unpopular, misunderstood, or being resuscitated by management. The P/E of the portfolio is 10.1x; the yield 3.63% and we are currently invested predominantly in Asia and the USA. Brexit and the problems with the Euro have yet to be resolved or indeed any credible plan to be aired. Our expectation is that the European Central Bank will have to pull back from its threat to unwind easy money in the light of the Italian government's recalcitrance on intended fiscal spending. Given the ageing, and failure, of European (and USA) infrastructure, the Italians are correct to want to spend money.
Our strategy is to capitalise on the expected imminent improvement of USA China trade relations to a pragmatic status, and to invest in companies which build, make or provide real services and products. The next decade should see growth coming from an increase in physical investment to replace the ageing highways, trains, hospitals, airports rather than from capturing 'eyeballs and clicks'. In that regard, Asia is well placed because of its financial strength and ability to get projects 'shovel ready'. The USA less so but we do have bipartisan agreement that the infrastructure in the USA needs to be fixed. Europe is dysfunctional.
After the falls in October we do not anticipate a rapid rebound and return to low levels of volatility. We will invest into price weakness and continue to favour companies which reward shareholders with dividends.
Markets & Commentary
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.