Investment Insight | Global investment partners
NZ Funds was one of the first in New Zealand to provide access to globally diversified portfolios. These investments were managed in partnership with world renowned investment organisations like Capital International in Los Angeles, Sanford Bernstein in New York and Wellington Asset Management in Boston.
To gain a globally diversified exposure to different asset classes, NZ Funds continues to use a combination of internally and externally managed strategies. NZ Funds manages assets in-house where we believe we have an advantage in doing so, and partners with global managers to invest the remainder of clients’ capital. When we look for global diversity, a unique advantage we have is our ability to identify and access top performing global managers.
We have over two decades of research on managers across numerous asset classes and geographies. This gives us a rich dataset from which we can select managers that we believe will give our clients the strongest risk-adjusted returns over the long term.
In this Investment Insight we summarise the outlooks of our five global share managers and how they see the remainder of the year playing out.
First, some definitions. A long-only investment manager generates superior returns by investing in shares that increase in value more than the share market. Long/short is an investment strategy that seeks to take a long position in underpriced shares while selling short overpriced shares.
MFS Investment Management | Boston, United States
NZ Funds partnered with MFS in 2019. Based in the United States and founded in 1924, MFS is one of the oldest long-only asset management companies in the world with circa US$600 billion in assets under management. MFS’s strategy is to search for the best global ideas, growth or value, by investing in companies they believe have favourable growth prospects and attractive valuations.
MFS believe that in an inflationary period, such as the one we have experienced over the past year, almost all companies have been able to raise prices, driving impressive revenue growth. But that isn’t pricing power. It’s simply a step that must be taken to keep up with rising costs.
Everyone is raising prices, and consumers have an easier time accepting them psychologically, in large measure because they have extra cash in their pockets because of the policy response to the pandemic. And that makes it harder for investors to distinguish companies that are simply taking advantage of cyclical forces from those that can command higher prices due to high levels of demand for products or services that their customers find superior and are willing to pay for.
MFS is not suggesting a bear market or correction is on the horizon. They expect high-priced financial assets that deliver underwhelming fundamental performance to be repriced. When valuations are high, the market’s tolerance for disappointing data is low. Active management has the potential today to be worth more than it has in a very long time. It is a time for patient, skilled investors.
Fisher Investments | California, United States
Fisher Investments partnered with NZ Funds in 2019. Founded by Ken Fisher in 1979 they currently manage US$190 billion. Fisher believes active portfolio management is the best way to discover opportunities and achieve long-term results.
The manager’s large in-house research staff analyse global investing opportunities – narrowing down from country and sector to find securities they think will do well moving forward. This disciplined approach allows Fisher to interpret information differently and find global investing opportunities other money managers may overlook.
Fisher continue to favour larger, high-quality companies. They believe markets are late in the market cycle - with the 2020 downturn behaving more like an outsized correction than a traditional bear, the market cycle did not reset. Shares are therefore behaving as they normally would in a late-stage bull market, with growth shares leading. Given their late market cycle view, Fisher believes that economic growth and inflation expectations are likely continuing to moderate as global economies reopen further, supporting their preference for growth shares.
Growth normally outperforms late in bull markets because of slower economic growth rates. Investors, seeing output slowing, gravitate to companies with a proven ability to make profits in tougher environments. They seek businesses with strong gross operating profit margins, product lines that are in demand through thick and thin, geographically diverse revenues and strong brand names. These high-quality features are all hallmarks of growth-oriented companies.
Suvretta Capital Management | New York, United States
Suvretta is today arguably one of the world’s pre-eminent long/short investment managers. A New York-based hedge fund with over US$4 billion under management, Suvretta was founded by Aaron Cowen, a former Portfolio Manager for George Soros and former Chief Investment Officer of SAC Capital. As one of Suvretta’s founding investors, NZ Funds’ clients have been invested since 2014.
Suvretta’s investment strategy starts with investing in industries which benefit from secular growth or shorting industries in secular decline. The firm strives to own great companies in solid industries and go short companies which are in weak industries and/or are losing market share. Their investment philosophy also emphasises companies with management teams that are either good or bad stewards of capital.
Suvretta continue to be constructive on overall equity markets as they see continued economic recovery and diminishing risks. Sentiment has flipped in some of the key areas of market concern, including regional COVID-19 outbreaks, inflation fears and government stimulus. As investors shift their areas of concern, economic conditions continue to improve, and equity markets continue to grind higher.
Emerson Point Capital | Connecticut, United States
Emerson Point was founded in October 2017 by emerging star Amir Mokari. Emerson Point is a long/short manager with a primary focus on three core sectors: consumer, TMT (telecoms, media, technology), and business services.
These three core sectors offer compelling long and short opportunities, given the tectonic shifts caused by the rise of the internet, demographic evolution (aging of millennials into peak spending years), and changing consumer behaviours due to technological innovations. Emerson Point’s use of checklists instils process discipline, encourages thoroughness, and helps minimise unforced errors. They also believe that diversification can often dilute returns. Rather than spread capital and human resources across a large number of investments, Emerson Point generally concentrates a substantial proportion of the portfolio in a small number of investments.
Emerson Point believe the biggest uncertainty for investors at the moment is watching the Federal Reserve (‘Fed’) in coming months. Yes, the rate of inflation is a concern but, more importantly, they say the turnover at the top of the United States central bank will cause uncertainty.
Chair Jerome Powell could potentially be replaced in the coming year, depending on how much President Joe Biden wants to reshape the Fed’s leadership. And while Fed Chairs always matter, the choice right now is even more critical.
Universa | Florida, United States
Universa is NZ Funds’ downside mitigation manager and is considered an alternative manager. Established by Mark Spitznagel in 2008, Universa is based on Nassim Taleb’s work which was later to become known as the ‘Black Swan Theory’. Universa believe financial markets are inherently unstable and its portfolio is designed to benefit from large (unforecastable) movements, as was the case in March 2020.
Global manager positioning
Global managers make up approximately 40% of our global share market exposure. As discussed in previous Investment Insights, we have increased our active management. We’ve done this by increasing clients’ exposure to the global managers mentioned above.
We anticipate increased volatility in share markets and believe there is value in being more selective in which companies, sectors, and geographies in which we invest. Our global managers are well positioned to make these capital allocation decisions.
To gain a globally diversified exposure to different asset classes, NZ Funds continues to use a combination of internally and externally managed strategies. NZ Funds manages assets in-house where we believe we have an advantage in doing so, and partners with global managers to invest the remainder of clients’ capital. When we look for global diversity, a unique advantage we have is our ability to identify and access top performing global managers.
We have over two decades of research on managers across numerous asset classes and geographies. This gives us a rich dataset from which we can select managers that we believe will give our clients the strongest risk-adjusted returns over the long term.
In this Investment Insight we summarise the outlooks of our five global share managers and how they see the remainder of the year playing out.
First, some definitions. A long-only investment manager generates superior returns by investing in shares that increase in value more than the share market. Long/short is an investment strategy that seeks to take a long position in underpriced shares while selling short overpriced shares.
MFS Investment Management | Boston, United States
NZ Funds partnered with MFS in 2019. Based in the United States and founded in 1924, MFS is one of the oldest long-only asset management companies in the world with circa US$600 billion in assets under management. MFS’s strategy is to search for the best global ideas, growth or value, by investing in companies they believe have favourable growth prospects and attractive valuations.
MFS believe that in an inflationary period, such as the one we have experienced over the past year, almost all companies have been able to raise prices, driving impressive revenue growth. But that isn’t pricing power. It’s simply a step that must be taken to keep up with rising costs.
Everyone is raising prices, and consumers have an easier time accepting them psychologically, in large measure because they have extra cash in their pockets because of the policy response to the pandemic. And that makes it harder for investors to distinguish companies that are simply taking advantage of cyclical forces from those that can command higher prices due to high levels of demand for products or services that their customers find superior and are willing to pay for.
MFS is not suggesting a bear market or correction is on the horizon. They expect high-priced financial assets that deliver underwhelming fundamental performance to be repriced. When valuations are high, the market’s tolerance for disappointing data is low. Active management has the potential today to be worth more than it has in a very long time. It is a time for patient, skilled investors.
Fisher Investments | California, United States
Fisher Investments partnered with NZ Funds in 2019. Founded by Ken Fisher in 1979 they currently manage US$190 billion. Fisher believes active portfolio management is the best way to discover opportunities and achieve long-term results.
The manager’s large in-house research staff analyse global investing opportunities – narrowing down from country and sector to find securities they think will do well moving forward. This disciplined approach allows Fisher to interpret information differently and find global investing opportunities other money managers may overlook.
Fisher continue to favour larger, high-quality companies. They believe markets are late in the market cycle - with the 2020 downturn behaving more like an outsized correction than a traditional bear, the market cycle did not reset. Shares are therefore behaving as they normally would in a late-stage bull market, with growth shares leading. Given their late market cycle view, Fisher believes that economic growth and inflation expectations are likely continuing to moderate as global economies reopen further, supporting their preference for growth shares.
Growth normally outperforms late in bull markets because of slower economic growth rates. Investors, seeing output slowing, gravitate to companies with a proven ability to make profits in tougher environments. They seek businesses with strong gross operating profit margins, product lines that are in demand through thick and thin, geographically diverse revenues and strong brand names. These high-quality features are all hallmarks of growth-oriented companies.
Suvretta Capital Management | New York, United States
Suvretta is today arguably one of the world’s pre-eminent long/short investment managers. A New York-based hedge fund with over US$4 billion under management, Suvretta was founded by Aaron Cowen, a former Portfolio Manager for George Soros and former Chief Investment Officer of SAC Capital. As one of Suvretta’s founding investors, NZ Funds’ clients have been invested since 2014.
Suvretta’s investment strategy starts with investing in industries which benefit from secular growth or shorting industries in secular decline. The firm strives to own great companies in solid industries and go short companies which are in weak industries and/or are losing market share. Their investment philosophy also emphasises companies with management teams that are either good or bad stewards of capital.
Suvretta continue to be constructive on overall equity markets as they see continued economic recovery and diminishing risks. Sentiment has flipped in some of the key areas of market concern, including regional COVID-19 outbreaks, inflation fears and government stimulus. As investors shift their areas of concern, economic conditions continue to improve, and equity markets continue to grind higher.
Emerson Point Capital | Connecticut, United States
Emerson Point was founded in October 2017 by emerging star Amir Mokari. Emerson Point is a long/short manager with a primary focus on three core sectors: consumer, TMT (telecoms, media, technology), and business services.
These three core sectors offer compelling long and short opportunities, given the tectonic shifts caused by the rise of the internet, demographic evolution (aging of millennials into peak spending years), and changing consumer behaviours due to technological innovations. Emerson Point’s use of checklists instils process discipline, encourages thoroughness, and helps minimise unforced errors. They also believe that diversification can often dilute returns. Rather than spread capital and human resources across a large number of investments, Emerson Point generally concentrates a substantial proportion of the portfolio in a small number of investments.
Emerson Point believe the biggest uncertainty for investors at the moment is watching the Federal Reserve (‘Fed’) in coming months. Yes, the rate of inflation is a concern but, more importantly, they say the turnover at the top of the United States central bank will cause uncertainty.
Chair Jerome Powell could potentially be replaced in the coming year, depending on how much President Joe Biden wants to reshape the Fed’s leadership. And while Fed Chairs always matter, the choice right now is even more critical.
Universa | Florida, United States
Universa is NZ Funds’ downside mitigation manager and is considered an alternative manager. Established by Mark Spitznagel in 2008, Universa is based on Nassim Taleb’s work which was later to become known as the ‘Black Swan Theory’. Universa believe financial markets are inherently unstable and its portfolio is designed to benefit from large (unforecastable) movements, as was the case in March 2020.
Global manager positioning
Global managers make up approximately 40% of our global share market exposure. As discussed in previous Investment Insights, we have increased our active management. We’ve done this by increasing clients’ exposure to the global managers mentioned above.
We anticipate increased volatility in share markets and believe there is value in being more selective in which companies, sectors, and geographies in which we invest. Our global managers are well positioned to make these capital allocation decisions.
Source: Global manager data, NZ Funds calculations, Bloomberg. Returns are beta adjusted.
For more information please contact NZ Funds.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
For more information please contact NZ Funds.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
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James Grigor is Chief Investment Officer for New Zealand Funds Management Limited (NZ Funds) and a member of the NZ Funds KiwiSaver Scheme. James' comments are of a general nature, and he is not responsible for any loss that any reader may suffer from following it.
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