The third year of the global pandemic has delivered new challenges for fund managers as war, whipsawing commodity prices and rising interest rates unleash fresh market volatility.
These two overarching themes – rising energy valuations and falling tech valuations – have come to define global equity markets this year, according to Brad Kinkelaar, senior portfolio manager for Barrow Hanley, a US value manager owned by Perpetual.“I’ve heard people say we’re in a value cycle now, but it doesn’t feel like a value cycle, it feels like an energy cycle and a tech downdraft. Those are the two bookends,” he says.
“I think it will frustrate some people who would prefer energy companies not to make profits, but the dynamics in place might actually make higher profits for the companies in that space,” Mr Kinkelaar says. Barrow Hanley’s global value portfolio has taken a long-term bet on Hess, a US-listed company with offshore drilling rights in oil fields off the coast of Guyana in South America.
The mixed market dynamics this year have favoured value investors. The MSCI World value index, a benchmark of large and mid-sized value companies, has traded flat since the year began, while its growth counterpart has fallen 12 per cent. “I’ve been managing global value portfolios since 2002 and I don’t think I’ve ever had a period where I was market-weight in tech,” he said. “With the recent weakness in tech it’s a natural place we want to go shopping and find attractive value.”Value managers typically stick to mature tech businesses such as Oracle, Larry Ellison’s back-office behemoth that has staked a name providing dull yet vital systems in human resources and accounting.
such as Alibaba, the e-commerce giant, Baidu, an internet conglomerate that runs a popular search engine, and Didi, the ride-hail group.