Opportunities in an increasingly networked world

Alex Stanic predicts international markets will remain tricky over the coming months, but insists it is still possible to generate decent returns because there are plenty of undervalued stocks available.

The manager of the £528.5m Newton Global Opportunities fund, who has been at the helm since its launch in July 2005, is focusing his attention on companies that are likely to prosper in such volatile conditions.

“It is a very good environment for active managers and that really suits our stock-picking abilities,” he says. “There is no doubt there are cheap stocks out there but the question is how quickly they will give you positive returns.”

The aim of the fund is to achieve long-term capital growth from a concentrated portfolio of international stocks. Unconstrained by index weightings, sectors or company sizes, it has the flexibility to buy only the highest conviction ideas.

“We are trying to find undervalued stocks, with strong fundamentals that are likely to benefit from our themes,” explains Mr Stanic. “The fund is driven by what we believe are the best investments on a global basis.”

This is one of the principle benefits that a truly international fund has over a domestically-focused portfolio, he points out. It is unlikely to be distorted by the presence of a handful of big companies.

“The opportunity to invest in companies anywhere is tremendously exciting as there is always something interesting to buy,” he explains. “We have the flexibility to find stocks that enter the fund on their own merits and not just because of their size.”

Investment themes, as previously mentioned, play an important role in portfolio construction.

“We use them as a backdrop to how we view the world and they are there to incorporate anything that is relevant as they can point us towards an inflexion point,” he says. “This includes macro-economic data and specific industry trends.”

One active theme is “networked world”. This focuses on the increased use of communications networks, such as mobile phones, in areas of the world that do not have a proper fixed-line network.

“You tend to find there is a better margin opportunity for that mobile phone network provider and less competitive threats,” explains Mr Stanic. “People will spend out on these mobiles because there is not an alternative.”

This is why telecommunications has the largest industry-specific weighting in the portfolio, at 28 per cent. The next largest are financials and basic materials which each account for around 15 per cent.

“We believe telecoms companies will be beneficiaries of this theme as well as being very cheap stocks,” he adds. “The great majority have a good dividend-yield paying ability and do not tend to be overly leveraged.”