JANA's Global Equities Research Team – Overseas Research Trip Report April 2023

1. Macro Backdrop, Geopolitics, Capital Markets & Regional Opportunities

The UK and US showed signs of a resilient high-end consumer; however, parts of the economy are struggling. Valuation dispersion across equity sectors has similarities with bond versus equity market pricing and despite (in aggregate) equity manager’s seeking relative value opportunities,   there is consensus in expectations for a mild recession. Emerging markets manager’s relative conviction about their asset class is as strong as we have seen in a long time. Following incremental improvements as part of Japanese Prime Minster, Shinzo Abe’s three arrows initiative over ten year ago, the Japanese equities stewardship story could be starting to finally play out, in part, a function of multiple changes in Tokyo Stock exchange listing rules. Could the Asian equity ‘tourist money’ find a safer home in the land of the rising sun, with geopolitical concerns surrounding China, and elevated valuations in India?

JANA view: Reaffirmation of portfolio perspectives; quality remains attractive (both in terms of pricing power and defensiveness), and in an uncertain and volatile environment, Active management should do well. While Emerging Markets is increasingly attractive, though ensuring portfolio balance remains important.

2. US Regional Banks and Commercial Real Estate

Investment manager consensus is that broader impacts from US regional banking crisis is contained for now, but there is less consensus on company fundamentals for some of those companies most affected. An affirmation of previous research trip findings; a considerable amount of asset managers have moved or are considering moving office locations – parts of the US office market are seemingly struggling, and this remains a watch point.

JANA view: Global equity manager positioning related to US banks is expected to be a minor relative alpha opportunity. However, risks in commercial property and secondary impacts remain a medium-term focus.

3. Energy Transition & Energy Market Dynamics

The Inflation Reduction Act (and derivative policy across other jurisdictions and US States) is poised to promote Trillions of ‘Clean Tech’ capital deployment. The implications are significant for investors. A relatively non-consensus view is that Energy has been considerably underinvested in, which has implications for asset allocation positioning and global equity portfolio construction.

JANA view: Discounting a near term economic slowdown, a potential energy price underpin supports a stickier inflation narrative. Opportunities for investment in both best in class ‘brown transitioning to green’, and green solutions are considered an alpha opportunity.

4. Technological Developments – AI & Semi-conductor layers

An almost consensus perspective across equity managers is that recent AI developments are revolutionary and will impact all industries. It is unclear who will be the winners across applications. Interrelated is the increased requirement for semi-conductors, adding to the dynamics surrounding the semiconductor cycle as well as implications for Mega cap Tech.

JANA view: A watchpoint remains on AI hype, and the prospective investment opportunities. We don’t see an increased demand for non-profitable speculative companies re-emerging. However, we remain focused on portfolio exposure to areas most impacted e.g. Mega Cap Tech and the semi-conductor ecosystem.