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Hotels, pipelines, convenience stores and automaker bonds –

are among the assets being bought by some of the world’s biggest asset managers as they look for value investment strategies in a world thrown into turmoil by the coronavirus pandemic.

These folk need to (and can afford to take a long-term view) on the their decisions.

They also need to be cautious by nature as capital preservation is key to their job preservation!

In interviews with sovereign wealth funds, pension firms and asset managers across Asia and Europe that collectively manage about $3.4 trillion, one thing was clear:

– many of them are avoiding the overheated stock market.

The most common outlook was one of caution.

Perhaps too cautious in my view!

They are mindful that much of the rebound in markets and private-company valuations is thanks to ultra-low interest rates, massive central bank stimulus and government fiscal support, some of which could start to be wound back in coming months.

With asset values still seen as inflated, even in some hot areas like healthcare and technology, many are waiting for a potential second downturn after stimulus measures end but before mass vaccinations enable economies to restart without risking widespread infection.

Here’s what they had to say:  – (no pretty images – apologies upfront!)

Convenience Stores, Pipelines

GIC Pte, Singapore’s sovereign wealth fund, is looking at “less loved” areas from retailing to infrastructure, whose valuations have been pummeled by the pandemic, Chief Executive Officer Lim Chow Kiat said when the firm released its annual review in late July.

The fund only officially discloses it manages more than $100 billion but has more like $450 billion, according to the Sovereign Wealth Fund Institute, making it the sixth-biggest in the world.

In two of its largest deals this year, it was part of a group that acquired a 49% stake in ADNOC Gas Pipelines for $10.1 billion, and last month teamed with Australian property group Charter Hall in a A$682 million ($500 million) acquisition of more than 200 convenience stores attached to gas stations.

Chief Investment Officer Jeffrey Jaensubhakij says even areas like hospitality could bounce back before global travel resumes. “Once you’ve contained the virus, domestic travel can come back even if international travel can’t,” he said.

“Then there might be opportunities in the hotel space where domestic travel could continue to grow and take up a fair amount of demand.”

Judging by some recent trips I have made within China, he could be right.

On two recent plane flights (September 2020) every seat was occupied on outward and inbound flights.

Supply Chain Shift

Global border closures can only be temporary, and trade is slowly recovering, says Didier Borowski, head of global views at Amundi SA, Europe’s largest asset manager which oversees the equivalent of about $1.9 trillion.

However, he predicts pharmaceutical and health industries will relocate production of some key goods to avoid being dependent on one country. But even then, Borowski says it would be too expensive and not cost-efficient to bring it all home.

“This is the end of unbridled globalization, not the end of globalization,” he said in an interview earlier this month.

Staycations

With travel restrictions limiting holiday plans, so-called staycations are back on the agenda, says Will James, deputy head of European equities at Standard Life Aberdeen Plc, whose team manages the equivalent of about $11 billion.

It’s invested in Thule Group AB, the Swedish maker of bike racks and roof-top luggage carriers for cars, whose shares have almost doubled since late-March.

“Rather than going abroad to the beach, people are staying home to drive around the country,” he said in an interview late last month.

 

Aviation stocks like Airbus SE could “recover very aggressively” if a vaccine is found, though he warns it’s still unclear if the world will ever go back to the way things were even if it works.

I am personally still not suporting airline or aircraft makers or related shares.

I think even if there is a deemed ‘full recovery’ that will only utilise existing craft.

Globally there remains many furloughed planes from bankrupt airlines and mothballed existing orders.

Bonds, Auto Bonds!

Bonds are one of the great unloved assets of the Covid crisis, says Andrew McCaffery, global CIO at Fidelity International, which manages about $437 billion.

Carmaker bonds are particularly attractive as auto production picks up, and more people drive to avoid crowded public transport, he said in an interview earlier this month.

“If you look at credit spreads, they’ve moved to levels that make the bonds of some global carmakers relatively attractive,” he said, citing Ford Motor Co. and Nissan Motor Co. as examples.

“These bonds are unloved, especially when you consider there’s been an increase in car usage versus public transport.”

My opinion here is that there are so many better places to invest.

For example I believe when auto production picks up we will whitness a greater push towards the transition to hybryd, electric and hydrogen cars.

It’s hard to say which automakers will be the winners, some major stalwarts such as Fiat and Ford may try and catch-up with the likes of Tesla etc.

But there may be room for some new ‘winners’ in the marketplace.

One thing is certain, battery technology is key for all the players, therefore I particularly like a Lithium and Battery Technology ETF which gives exposure to 40+ companies likely to benefit.

Green Rebound

During the pandemic selloff and rebound AustralianSuper, the nation’s biggest pension fund with the equivalent of about $133 billion, kept more than half its portfolio in Australian and global stocks and reduced holdings of property, credit and private equity.

Now it’s hunting for digital, transport and social infrastructure investments as governments pump-prime economies, CIO Mark Delaney said last week.

The firm is also looking for more renewable energy opportunities like last year’s $300 million deal with Quinbrook Infrastructure Partners as governments consider a green rebound.

“Clearly doing more around the environment will be a really great long-term outcome,” he said. “Given governments are prepared to spend more and be more proactive around the economy, they’ll probably be far more proactive around the environment as well.”

Holding Fire   – Over Cautious?

With a mandate to maximise long-term returns, Australia’s sovereign wealth fund is keeping its powder dry, CEO Raphael Arndt said at its annual portfolio update earlier this month. The $118 billion fund is positioned cautiously with no pressure to deploy its liquidity “unless and until the opportunities arise,” he said.

“Economies right around the world are in their worst recessions for many, many decades, and if you look at the price of assets, they haven’t moved much,” he said. “The question investors have to ask is: does that make sense?

The only way it makes sense is if interest rates stay very close to zero and stimulus stays for a very, very long time — and there’s got to be risks to that. That’s why we think we’re much better positioned in a cautious way right now.”

Data Centres

With public markets overvalued, Aware Super CIO Damian Graham is going into direct investments, such as data centers and apartment buildings. The $91 billion fund is also selling some of the assets it thinks will struggle, like office buildings and malls, as people change the way they work and shop, he said in an interview last month.

The area of Data Centres I like and the average investor does not have access to ‘direct investments’

Therefore I like the Wisdom Tree Cloud Computing ETF – again providing some good diversified exposure to a number of companies set to continue to benifit from the move to Data Centres.

The scope of requirement by companies worldwide is huge and one report I read recently indicated that only 2% or so saturation therefore a huge upside potential.

The Sydney-based fund last week invested 100 million euros ($118 million) with APG Group NV to build serviced apartments in Europe — a deal that could increase to 500 million euros. It’s also in a bidding war for listed fiber-optic operator OptiComm Ltd.

China Tech

While China was the first to be hit by the coronavirus, it is now leading the way out, making it an attractive proposition for Singapore’s state investor Temasek Holdings Pte.

The firm, which oversees the equivalent of about $225 billion, is positive about several key themes in China, including consumer technology, life sciences, biotechnology, and fintech, Chief Investment Strategist Rohit Sipahimalan said at the firm’s annual review earlier this month.

“This year probably China will be the only large economy with positive GDP growth,” he said.

Fast Fashion

L Catterton Asia Managing Partner Chinta Bhagat, whose parent company manages $20 billion, says investing amid the pandemic requires a detailed look at each country’s circumstances, down to how specific cities are faring. While deal-making continues to be slow in some places, it’s roared back elsewhere.

“Covid basically started in China and has ended in China,” he said. “Unless there’s some miraculous negative misfortune where it resurfaces, Covid in China is over for all economic — and our deal environment — considerations.”

The firm is considering doing deals at an earlier stage in areas like e-commerce and consumer technology — if it waits to do late-stage buyouts in those sectors it risks being outbid by big competitors like Temasek.

One area of interest is Chinese-style influencer-driven fashion. Where Western brands have traditionally used the star power of a single celebrity (think Kim Kardashian and Jessica Alba), many companies in China use armies of social-media influencers to sell products via e-commerce platforms to great effect.

 

“I’d be very surprised if we don’t end up doing some kind of social commerce deal just because we’re becoming better and better at figuring out the risk-reward there,” he said.

As with all opportunities to invest and get it right it’s definitely beneficial to consider the platform that you use to house your investments, some of the best that have inherent, long-term tax advantages are not downloadable via the internet.

For a chat with me do get in touch here

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