Transcript: Focus on valuations is key when it comes to global equities

Names he likes

BP: Names that have performed quite well for us are on the grocery thematic that we just discussed, so names like Walmart [Bentonville, Ark.-based Walmart Inc.] and Costco [Issaquah, Wash.-based Costco Wholesale Corporation] and TJX [Framington, Mass.-based TJX Companies, Inc.] have performed very well for us. We have a longstanding nuclear power thematic. We have looked into nuclear power for in excess of five years now, and we see power consumption essentially compounding pretty much every year. We’ve clearly made these environmental commitments pretty much across the world, and that has resulted in a phasing out of coal. And in the meantime, we need more power. We have, in many ways, turned to renewables — to wind and solar. But the problem is they are intermittent. Sometimes it’s not windy, sometimes it’s not sunny. And so, analyzing the transition plans of the major economies, there was not really a viable plan that didn’t have nuclear power in it. And, so, we like companies like Cameco [Saskatoon, Sask.-based Cameco Corporation]. They’ve got uranium mines, and relationships with utilities and laser enrichment via a company called Silex [Lucas Heights, New South Wales, Australia-based Silex Systems Limited]. And that is a really interesting way that we have played the nuclear power thematic for several years now. And that has been a quite successful story to us. Of course, all of these names sit within a valuation construct, and we are very, very valuation focused. Many of these companies are great companies, but sometimes they can become expensive. And so, we do spend quite a lot of time looking at valuations and comparing them to the macro environment that we’re in.

Global growth expectations

BP: The U.S. market is proving to be remarkably resilient. It seems that we’re going to get somewhere in the order of 2% GDP growth for the next couple of years really. That’s not necessarily a market we’re particularly worried by. The Indian market has been incredibly strong. There are demographic reasons why it has been strong and why it could continue to be strong. The economic growth there is significant, off a really quite large base. China is the area that has been obviously most controversial recently. The stimulus announcements that have been made over the last month or two, whilst they may not be sufficient to fix all of the problems right now, as is, they’re showing intent. And so, we are probably more optimistic than most on China. And that leaves Europe. Different countries and different governments working together in one block sometimes leads to sub-optimal outcomes. We’ve got demographic headwinds in places like Italy. And in Germany we’ve got debt levels that are high and rising. But we’ve got a number of companies that have performed incredibly well and that are really innovative. And companies like Novo Nordisk [Bagsværd, Denmark-based Novo Nordisk A/S] on obesity. And if you want luxury goods, you’re probably going to find yourselves, in some way or another, invested in France. And companies like ASML [Eindhoven, Netherlands-based ASML Holding N.V.] that, you know, are clearly leaders in their field. So, there are some excellent companies but there are some ongoing GDP challenges that relate to demographics.

And finally, what’s the key takeaway on global equities in the current moment?

BP: I think from a long-term perspective, we continue to see equities as a good place to be invested in. Equity markets are great at passing through inflation. Equity markets over the long term grow with earnings. You’ve got some ebbs and flows because of valuations, and so it is very important to keep on top of valuations. But we’re still, from a medium- to long-term perspective, very positive on equity markets. And we like to say never bet against human innovation. And that is what is driving these businesses.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Bimal Patel of Canada Life Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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