Why it's too early to buy great technology

Why it’s too early to buy great technology

In many cases, the performance of the underlying trades remains very good, it was just that the market offered these stocks to a stratospheric level and multiples had to fall in the end.

Of those in our universe, specifically Microsoft and Alphabet, we would need to see further stock price declines before moving to the extent considered in the portfolio.

Where are we rotating into value stocks? Are we behind the day of market sales?

We don’t believe that. The growth market has been distorted for a very long time and we do not think that we are even close to equilibrium. As a fundamental stock choice, we do not focus on performance and growth factors, but the data show that it was the largest growth market in history, with a spread that even exceeds [dotcom] boom.

The value has returned in the last six months, but growth has been surpassing for more than a decade.

In addition, the environment of rising interest rates and structurally higher inflation has historically favored value over growth.

Rising rates are generally negative for growth companies, which expect to make the most of their profits in the future, and relatively better for companies with a value where higher profits are expected in the near future.

We consider this preference of value-oriented companies to be a structural rather than a short-term cyclical shift.

Is China currently non-investable? Why does the fund have no exposure to Chinese equities?

China is not a market in which we would normally invest under a Global Equity Franchise strategy. With this strategy, we try to control the risk when the universe is created. We exclude companies that we believe are unable to predict revenue in the long term.

The challenge for us is the Chinese regulatory situation, which can change almost overnight and which makes it very difficult to predict profits with any degree of certainty. This is exactly the situation we have seen with some Chinese technology companies over the last 12 months, and it has confirmed our long-held view that China is not currently a suitable market for our strategy.

This does not mean that I think China is non-investable, but rather does not meet the parameters of this strategy.

Are there any specific stocks that the market underestimates the most?

Healthcare is our largest sectoral position in the strategy. We do not perceive this exposure in this sector as a thematic idea in the portfolio, but rather as an option to invest in individual companies with very different business models and value offers.

Some of these supplies were sold during the pandemic due to the disruption of COVID-19 medical services, but we are now seeing a normalized operating environment and this is proving to be very beneficial for them.

Which shares in the fund are you most pleased with and why?

International Gaming Technology is a long-term holding company in the strategy. IGT is the world’s leading holder of lottery concessions and a gaming company. In our valuation, we attribute most of the valuation to the lottery concession trade.

This is an interesting example for Australian readers, as The Lottery Corp (TLC) was recently introduced at ASX. If you compare the expectations of market brokers for the calendar year 2023, the comparison is interesting.

TLC is just over 3 percent at almost 30 times operating cash flow, 17 times EBITDA and free cash flow income, compared to IGT at less than 9 times operating cash flow and 6.5 times EBITDA and more than 12 percent free cash flow.

In addition, IGT produces almost three times as much operating profit and cash flow as TLC and is a much larger and global business.

Do you have any good podcasts or TV shows you’ve been streaming lately?

I try to avoid financial podcasts to clear my mind of the markets.

I really enjoy the podcast Talking to painters by Marie Stojarová. The interviews usually last about half an hour and Maria talks to Australian painters about their lives and art. It’s a good way to learn about new artists and gain a deeper understanding of their practice.

When it comes to TV shows, I really enjoy satirical comedy-dramas; White lotus is a favorite, or if you want your humor a little darker, Sequence.

What is your favorite local restaurant or bar? What do you want to order?

Unfortunately, our local favorite Italian restaurant is closed. And thanks to the COVID-19 blockades, my wife and I like to buy fresh products and cook at home. Now I make pretty good salmon on BBQ.

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