Despite global geopolitics, tariffs and cost-of-living pressures, opportunities are abundant for investors that are able to recognise the fundamentals of company success and who can navigate market noise and look beyond periods of volatility, according to ECP Asset Management.
ECP believes that opportunities for bottom-up stock pickers continue to exist in both Australian and global markets.
Australian outlook
Although somewhat insulated from US tariffs, cost-of-living pressures are still evident in Australia, according to Andrew Dale, partner in ECP’s investment team. But the outlook for the Australian market is turning, and it is looking more positive, particularly in the consumer sector.
“Last week CBA released its credit card data, which showed an uplift in nearly all spending categories and suggesting that inflation is not biting into consumer spending as much as expected. People are buying more, whether it be consumer electronics, food or for entertainment.
“Usually when interest rates stop going up, people get a little bit more confident about the outlook. And we've probably got one or two more interest rate cuts to come this year, which should further fuel this positive sentiment. It seems to me that consumers are quite resilient at the moment.
“For example, stocks like JB Hi-Fi continue to perform strongly and Coles has been a really strong performer against Woolworths in recent months. Even apparel like Levis has had a bounce back,” said Dale.
Global outlook
Looking globally, Annabelle Miller, principle, investments at ECP Asset Management, says that while uncertainty reigns over the outlook for the US, investors can still find opportunities to capitalise in other markets, particularly in Europe.
"There are a number of structural drivers that are reigniting growth in the European market and capturing the attention of investors.
“The European Commission’s push for a Savings and Investment Union in Europe is a significant driver, which would incentivise households to allocate savings into equity investments. This would be a positive for flows into domestic European equities.
“Defence spending is increasing across a majority of European countries, and we’ve seen the shift in Germany where lawmakers voted to allow indefinite spending in defence for the first time since the end of World War II. This is in addition to increased spending in infrastructure through the creation of a €500 billion infrastructure fund.
“One further driver that is yet unclear is the net outcome of Section 899 of the US budget reconciliation bill. If passed, this will impose taxes on passive income derived from the foreign ownership of US assets on countries that have levied foreign taxes on the US. This could lead to domestic European capital investors shifting away from owning US equities in favour of their domestic counterparts.
“We are finding great opportunities to increase our allocation to global franchises irrespective of geography. Ferrari, Sartorius Stedim Biotech and Atoss Software are all companies we believe have strong fundamentals to withstand macro volatility, and benefit from these structural drivers,” said Miller.
Benefits of a bottom-up approach
Rather than make investment decisions based on macro, country or sector outlooks, Jared Pohl, partner at ECP Asset Management, says investors should adopt a bottom-up asset selection approach.
“We invest a particular way because we think it's the best driver of long-term investment returns. Every day there's something new. Investors reposition their portfolios to take advantage of the new information and ultimately end up chasing their tails.
“At its most simple, investors should be looking for companies whose success is not necessarily driven by global macro movements but that have strong fundamentals and a competitive edge to withstand and continue to grow even in times of uncertainty and volatility.
“Investors should focus on finding companies that are in the growth phase of their life cycle - that is, companies which are expanding their economic footprint through time. We would rather invest in companies that have predictability of growth, strong fundamentals and a competitive edge, to withstand and continue to grow even in times of uncertainty and volatility. We think these are the best companies to invest in, not necessarily ones that are mature or more correlated to macro events.
“In this environment, a bottom-up approach becomes all important. It assists in finding high quality growing businesses with strong current performance metrics but that also possess the qualitative attributes necessary for sustainable success, especially during times of global uncertainty,” said Pohl.
