Platinum Asset Management’s recently released September quarter update wasn’t pretty. The long-term value manager has been left behind by surging growth stocks, with recent underperformance placing pressure on fund flows. In 2020, over half the group’s funds have underperformed their relevant benchmarks but continue to benefit from longevity in the form of strong longer-term returns.
Yet signs of a vaccine may just be the tailwind the group needs as it seeks to chase down the booming Magellan Financial Group (ASX: MFG). In the quarterly update, Platinum CIO Andrew Clifford was quoted suggesting that the biggest risk for investors was in “highly-valued growth stocks” and that the opportunity was actually now in those companies that “will benefit as we move into the post-COVID environment.” In hindsight, the timing couldn’t have been better, with value winning the first days of a post-vaccine recovery.
However, there is still a lot of ground to make up. For the 12 months to October 2020, the group’s flagship funds have tended to underperform benchmarks. The International Fund, which forms the core of most portfolios, is down 5.3% over the period, compared to a positive return of 2.9% for the benchmark, Platinum Europe, -17.9% and Platinum Japan, -8.9%. There are, however, signs of recovery, with the International Brands Fund outperforming, adding 4.3% over the same period.
The clear standout, however, has been the Platinum Asia strategy, which has added 28.5% in the last 12 months, close to double the benchmark. There are signs the fund may become the new ‘core’ fund for portfolios with the changing of the guard in global leadership from the US to China clearly underway. The objective of the fund is to invest into a diversified portfolio of undervalued businesses benefitting from the region’s ‘dynamic growth and transformation’.
Despite the name and reputation, the strategy has a clear “growth” rather than value focus. The portfolio is heavily tilted towards consumer discretionary, 26%, IT, 23%, and communications, 10%, names not unlike the S&P 500. Under the guidance of portfolio manager Dr. Joseph Lai, a fluent speaker of both Cantonese and Mandarin, the fund has gone from strength to strength under his control, since 2014.
Today, it is predominantly invested into China, where 45% of the portfolio is held, with a long list of COVID-19 winners following, including Korea, 13%, Taiwan, 9% and Hong Kong 8%. The list of winners is more akin to a global technology portfolio than something you would expect from a traditional value manager. Taiwan Semiconductor (TPE: 2330) is the largest holding at 7% and is the world leader in the manufacture of the semiconductor chips that power everything part of modern life from computers to robots and vehicles. The other key holdings are well-known names including Samsung Electronics, Tencent, Alibaba and Ping An Insurance, all of which have benefited heavily from China’s success in combating the pandemic and its government’s subsequent focus on building greater “self-sufficiency.”
One of the more unique holdings in the portfolio is sports apparel business, Li Ning (HKG: 2331), named after its founder namesake, who won three gold medals at the Los Angeles Olympics in 1984, the first Olympics in which the People’s Republic of China participated. For those who follow professional sports, the group has been growing in popularity in the world’s largest professional basketball association, the NBA, behind its unique designs and support from athletes left behind by the likes of Nike and Adidas.
According to Dr. Lai, the brand was the “original” domestic sports brand, but struggled for a number of years in what has been a torrid competitive environment. Improvements in product design and a refreshed brand has seen the company turn its fortunes around. The result has been a strong improvement in sales and profits. Importantly, management sees opportunity in the worsening US-China relations, hoping that Chinese consumers will be patriotic and move towards brands with Chinese heritage. Thus far the results have been impressive, the share price has nearly doubled since August.
Timing is everything
The final comment in Platinum’s update offers a contrasting insight into where we stand today.
“There is much discussion about a new world for investing, or a new paradigm if you will, marked by interest rates at or around zero for the foreseeable future and the never-ending march of new technology continually changing the business landscape. This new environment renders all the old rules of investing null and void. Perhaps? Or is this just another version of the four most expensive words in investing: This time is different?”.
We may find out sooner than we thought.