These are wonderful times to be a global investor, says James Thomson, who manages the £1.1 billion Money Observer Rated Fund Rathbone Global Opportunities.
His concentrated portfolio takes big conviction positions, holding between 40 to 60 growth companies, a mixture of both ‘high-adrenaline’ and lower growth but more reliable businesses; at present he has 60 holdings. ‘I’ve never had so many buy ideas, and I’ve never been so fully invested,’ he comments.
However, Thomson does see macro-economic clouds on the horizon and anticipates a stormier 2018. He points to the deterioration of certain leading US indicators, including manufacturing PMI, new orders and consumer confidence. ‘Investors are very bullish at the moment, but we need to be cognisant of the risk of a more difficult time ahead,’ he says.
To that end he has been tilting the portfolio towards the more dependable end of the spectrum. ‘I have around 75 per cent in more aggressive growth companies focused on powerful, unstoppable global trends, but I have increased the proportion in more weatherproof companies to 25 per cent - it was about 20 per cent six months ago.’
Current secular growth holdings include Amazon, which he holds despite its sky-high valuation because of its continuing drive to capture new markets and undercut competitors, and Tencent, which is China’s biggest social media company. The firm is also China’s largest video game developer, which according to Thomson is the biggest attraction for him as an investor. He says the games are so popular that some consumers have become ‘addicted’, which in the case of the most played mobile game led Tencent to this summer put daily time restrictions in place for children.
Among the more reliable holdings is boiler-maker AC Smith, on the grounds that boilers have to be fixed no matter what’s going on with the economy.
Looking ahead to 2018, Thomson highlights several more cyclical parts of the market on the back of his macro-economic concerns.
‘The quintessential value sector and most economically sensitive to levels of aggregate demand’, commodities are likely to suffer if the global economy deteriorate, so Thomson is steering clear.
He says it’s very difficult for banks to differentiate themselves from peers, or to be meaningfully innovative. He does own one US bank, but on the basis of outstanding customer service rather than technological developments.
3. Small caps
Smaller companies are too economically sensitive to be a good bet in the current economic backdrop, says Thomson, and it’s too easy to make mistakes. ‘I rarely buy companies under $1 billion, because it’s safer to wait until they are bigger and more established.’
Like commodities, many industrial companies are subject to the vagaries of the economic cycle and Thomson holds ‘very few’ such stocks, though he does like the dependable replacement-type businesses such as his boiler-maker holding.
5. Value stocks
When the economy is perceived to be set to improve, as was the case immediately after president Trump came to power at the start of 2017, cyclical value stocks tend to do very well. In the face of storm clouds on the horizon, Thomson is veering towards more ‘all-weather’ holdings.
In preference he says he will be looking for large-cap growth stocks, and favouring more defensive sectors such as healthcare and food & beverages, as well as leading internet and IT businesses that are part of the ‘powerful, unstoppable’ global technology trend.
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