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A research trip was carried out by Matthew Gadsden, Senior Consultant and Head of JANA’s Global Equities Research Team, and Daniel Kisnorbo, Consultant, in late October 2019. During this trip Matt and Daniel visited in excess of 50 global equity managers in Denmark, Switzerland, the United Kingdom and the North American cities of New York, Stamford, Boston, Washington DC, Baltimore, Toronto and San Francisco.
The JANA research programme is multi-faceted, broad and deep. With the final purpose of our research being the pursuit of better investment outcomes for our clients, we acknowledge the importance and requirement of overseas travel to gain knowledge and insight from multiple and different sources.
One recent research trip was carried out by Matthew Gadsden, Senior Consultant and Head of JANA’s Global Equities Research Team, and Daniel Kisnorbo, Consultant, for three and a half weeks commencing in late October 2019. During this trip Matt and Daniel visited in excess of 50 global equity managers in Denmark, Switzerland, the United Kingdom and the North American cities of New York, Stamford, Boston, Washington DC, Baltimore, Toronto and San Francisco. The purpose of the research trip was:
1. To meet new Meetings across incumbent / new equity managers, industry players and likeminded investors; and
2. Most importantly, to garner and feedback insights for the benefit of our clients’ portfolios.
While a number of idiosyncratic issues emerged during the trip, some key common themes included the following:
• The state of the US economy is mixed. Various data points suggest some areas doing it very tough (Autos, and Retail) while other segments are performing well;
• An observable slowdown in New York and Connecticut, primarily as a result of personal income tax changes. This contrasts with destination cities, Boston, Austin and Dallas;
• Trump remains the epicentre of uncertainty for markets and manager investment theses;
• Sustainability considerations are gaining traction; asset managers have built (and are building) proprietary databases and ratings systems. Manager anecdotes highlighted the differences in company ESG considerations outline the vast degrees of interpretation across the industry.
Aggregating anecdotes and information from several sources, there are several key notable points (and JANA perspectives):
• There are no obvious areas of major dislocation offering attractive opportunities for investment. (We remain strong advocates of maintaining portfolio balance)
• Some investors see the “value” opportunity as large, some see it as transient. A general feel of investors edging towards cyclicality in the short term. (Value conscious quality growth managers and pragmatic value managers have been identified as preferred targets for incremental cash flow)
• Emerging markets managers are more conducive than twelve months ago on improving governance and reform stories (Russia, Brazil, China). (Emerging markets present as being a little more attractive, however, current exposure and positioning needs to be taken into consideration)
The extreme dispersion in relative valuation terms between Value and Defensive stocks has been well documented and continues to be a topic of discussion. Since our trip, growth stocks have continued to outperform value stocks, however, considering investors have been less pessimistic (due to continued accommodative monetary policy and easing trade tensions), more defensive stocks have generally underperformed. Nonetheless, our perspective on the Value vs Defensives dynamic has been outlined below:
Value: The proposition for Value has looked attractive for the past 5 years, but perhaps even more so recently when comparing against the more expensive segments of the market. This poses a shorter-term opportunity, but longer-term structural impediments that are expected to persist (lower rates for longer, global economic growth slowing) which manifests in a requirement to be selective and circumspect in allocating to exposures.
Defensives: The dynamic of investor preference for certainty relative to uncertainty has underpinned the new value/growth regime, albeit narrowing in recent times. We believe that attention should be given to trimming those exposures that have rallied hard (where multiples have expanded) and where valuation is less of a consideration. However, forward looking quality remains an attractive space for investors that have a long-term focus and are less concerned with benchmark relative performance.
Areas of further development
A key component of the outtakes from our global research trip programme is the development and refinement of our research pipeline. Below we have listed a number of projects we expect to continue to evolve our research in 2020:
• The evolution of market structure in the context of implementation of MiFID II European regulatory directives implemented in 2018;
• The case for Chinese equities investment; and
• The case for long term equities.
Please contact your JANA consultant should you wish to consider the contents of this note further.
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