Share price dislocations relative to underlying company fundamentals still exist across global markets despite the recent stockmarket bounceback, according to AMP Capital's head of global equities Simon Steele, who has added a small selection of new holdings to his highly-concentrated Global Companies fund in the throes of the Covid-19 crisis.
The manager, who launched the £117m fund three years ago in March, said the addition of two new holdings is significant given that each stock is selected with a time horizon of at least five to seven years. The fund will hold between 25 and 35 stocks at any one time, with its ten largest positions accounting for almost half of the fund.
"If you look at the S&P 500 index, there are a lot of consensus estimates for years one and two, but very little for five years, and holding periods are typically short," he said.
"Long-term share prices are empirically explained by fundamental changes in value such as earnings, dividends or cashflows. Short-term share prices are nothing more than day-to-day fluctuations. If you want better risk-adjusted returns, you need better risk-adjusted fundamentals, which only come to the fore over the long term.
"Buying something just because it dips that day is like buying two houses that, on paper, look identical. And then when you get there, you find that one of them is parked next to a sewage farm, and the other one is not."
As such, the addition of two new holdings to his portfolio - Chinese biopharma firm WuXi Biologics and condiment company Foshan Haitian - were based on the fact the manager has been keeping watch over them for some time and decided to buy in at the right valuations.
"WuXi is an outsourced provider of the services required to make complicated biologics; it earns revenues all the way from discovery and clinical trials to commercialisation, meaning it has high barriers to entry and long-term revenue generation" Steele explained.
Foshan Haitian, which is also domiciled in China, was added to the portfolio because it offers "everything an investor should want from a company", according to the manager.
"Soy sauce is a scale game. It is by far the biggest producer and one of the only companies that can distribute its products nationally as opposed to regionally, giving it a huge advantage," he said.
"Its manufacturing costs are also much lower per product given the scale of the operation, it has a broader range of products than its peers and it will better be able to deal with improving food safety standards than the local ‘mom ‘n' pop'-type players will."
Alongside tightening food regulation, Steele is accessing long-term themes including remote data, robotic surgery and pet care.
"The robotics surgery area of the market has been harmed in the short term because many health centres simply are not open or at full capacity", he explained. "But in five years' time, do we think the number of robotic surgery procedures is going to increase? Yes, because it will reduce the strain and costs on healthcare systems and will mean patients are treated more efficiently. It is a nice structural trend."
Since AMP Capital Global Companies launched in March 2017, it has returned 97.3% compared to its average peer's return of 27.1% according to FE fundinfo, making it the fourth best-performing fund in the 284-strong IA Global sector.