An overuse of fiscal and monetary stimuli has made stockpicking more difficult in global markets, according to Newton’s Raj Shant, as he attempts to avoid pitfalls by backing consumer stocks.
The manager, who works on the £335m Newton Global Opportunities fund, said the “excess abundance” in the global economy resulting from low interest rates and money printing meant consumers benefited, but struggling companies got to die another day.
He said: “There’s more stuff available more cheaply than ever before; aren’t we the lucky ones as consumers. But as investors that’s not so great because we’ve got overcapacity in more industries around the world.”
Mr Shant pointed out that loose monetary policy had made it easier for struggling firms to finance their debt, allowing those that would not have survived with higher interest rates to stay in business for longer.
“We’ve been warning the Japanese about this since the 1990s and then our turn comes around and we make the same mistakes. It encourages firms that should go bust to stay in business because they are inefficient, zombie companies,” he said.
This meant stockpickers had to work harder to find companies with strong fundamentals over struggling firms masked by cheap debt, Mr Shant added.
The manager has been adding to firms with strong consumer bases that will do well regardless of what is going on in the larger global market. He has bought names such as alcoholic beverages firm Diageo, money transfer service Western Union, and TJX, which owns the TJ and TK Maxx clothing stores.
Diageo became a top-10 holding at 2.8 per cent in the 49-stock portfolio at the end of June.
Mr Shant’s theory of abundance has pushed him to sell his position in oil services company Wood Group to finance his shift to consumerism. Despite the woes in the oil sector, he said the stock had become fully valued as a result of overstimulated global markets.
He originally favoured the company because, as a consultancy service for energy firms, it was not as directly exposed to the falling oil price. But the stock then reached its valuation target.
“We thought [Wood Group was] a nice place to be: you get some of the upside if there is any recovery, you don’t get the downside because it hasn’t got gigantic holes in the bottom of the ocean floor, and you either have to keep pumping or you’re going to lose billions in revenues because you’ve already sunk all these costs,” he explained.
The rebound in the oil price resulted in a bounce in the price of Wood Group’s shares, making it a good opportunity to take profits.
Mr Shant said: “We sold it because this year [there’s been] a bounce in the oil price and Wood Group, having not fallen as much as the rest of the sector, bounced just as much as the others – presumably because people wanted to cover their index risks and we were quite happy to take the other side of that.”
The Newton Global Opportunities fund has delivered 45 per cent over three years, while the IA Global sector returned 28 per cent in the same period, data from FE Analytics shows.
