Platinum Asset Management delivered its quarterly report last week, which was largely a mixed bag of results. Five of the eight funds beat their respective benchmarks while the remainder missed. Of those that outperformed, the Platinum International Brands Fund, Platinum Global Fund and the Platinum Japan outperformed convincingly.
However, one of Platinum’s biggest active funds, Platinum International Fund ($8 billion), disappointed investors with another year of poor returns. The fund is often held-up as the hallmark of international fund performance, in which the company has consistently applied four value-based investment principles that it believes have withstood the test of time. and delivered time and time again.
The Platinum International Fund missed the mark, and its commentary is as confusing as its stock selection. The fund’s yearly return of 26.1% versus the MSCI All Country World Net Index return of 27.7% was only slight underperformance, but another blow for the fund’s track record.
Since its inception in 1995, the fund has increased an original investment of $20,000 to more than $300,000 — a compound return of about 12 per cent. That compares to the return of the MSCI World Net Index (in Australian dollars) that has grown an original $20,000 to just over $90,000.
Despite the underperformance, co-chief investment officer, Andrew Clifford, remained optimistic, saying the company’s “portfolios always reflect the opportunities that we can find in individual stocks, and on that front, we remain of the opinion that good returns are still on offer.”
What’s evident here, is that the team’s view on inflation was a little clouded, causing it to miss the value recovery, which saw a huge rotation of money from growth into value.
Clifford is somewhat surprised that this value recovery took place, saying, “the market’s response was curious, with concerns about inflation prompting investors to turn away from economically sensitive stocks, back to buying certainty (growth and defensive businesses) late in the quarter.”
With Federal Reserve commentary now suggesting three rate rises by the end of 2023, yields on shorter-dated bonds rose, while those on the longest-dated bonds fell, as the market was pricing in two rate rises for the end of 2023. With equities, the impact was a reversal in the reflation trade. Money went from ‘value’ cyclicals back to technology and defensives. It’s evident that this was a temporary correction, to factor in the final Fed rate rise. Despite yields heading higher later in the year, long-dated bond yields are flat, reducing worries that inflation will keep rising.
If this market reaction were just a temporary blip, then the rotation back to value is far from over and Platinum should have used this opportunity to increase its exposure to cyclicals and materials instead of offloading its commodity-related stocks.
At times, Platinum is unsure of where inflation is heading, with comments such as, “the last six month-period has been interesting as we moved from there being no evidence of inflation, to nascent signs, and now some of the highest rates of inflation, at least in the major economies, that we have seen in decades.”
Platinum’s team does not paint a clear picture nor offer investors a solid inflationary outlook but instead errs on the side of caution. Clifford points to possible scenarios for where inflation can head; either the inflationary spike turns out to be short-lived, or inflation persists. As an investor, you can’t help feeling a little baffled as to where inflation is headed.
All in all, Platinum seems to tilt towards persistent increases in inflation causing a rise in rates and fall in equities, advising investors to be cautious. Should the team instead be looking to capture earnings growth while it is on offer in low-priced, quality companies that may see earnings rebounds?