Fidelity’s global equities portfolio manager, Amit Lodha, has won the Sydney leg of the fund manager’s Battle of the Asset Classes, being awarded the bout on points from Fidelity’s Australian equities portfolio manager, Kate Howitt. At the start of the forum, the audience of financial planners was asked to nominate how much of a client’s portfolio they would allocate to global equities today if they were asked to lock in for the coming decade. The average allocation nominated by the audience was 31 per cent.
The winner of the bout would be determined by whether that figure rose or fell after hearing the arguments put forth by Lodha and Howitt. After hearing both arguments, the figure rose to 35.9 per cent, handing victory to Lodha.
Howitt works
Howitt argued that Austrlia has had “a wonderful run in our economic growth” and that has been due to exposure to China, in large part.
“But let’s not forget that underpinning that has been flexibility in our economy, and that should give us the understanding that when the mining sector plays out, other parts of the economy will step up,” she said.
“That’s been the history with the Reserve Bank monetary policy helping that transition.
“We’ve had leverage to emerging markets most strongly through our iron ore and coal exports. That should still play out with a pick-up in volume export rates, but also now we’ve got liquefied natural gas coming through, so for several years we’ll have a very large capital expenditure boom driving us forward.
“The market is cheap, and each of us has to look and come to a view as to why it’s cheap, but the good thing is that since they are cheap, the risk/reward is in our favour. It’s hard to come up with a scenario of significant downside from here. The range of scenarios points more towards markets at least staying flat from here.
“If we’re in a new valuation paradigm, then you want to play the yield, and if that’s what you’re after, Australian companies can do that because they’ve got higher returns that they can pay out to shareholders and a franking regime that gives them an incentive to pay those out.
“In terms of the market, it is always inefficient, no matter what the economic climate. Good times or bad, the market is very good at mispricing stocks, so there are always opportunities out there to buy stocks that are cheap, stocks that are under-appreciated by the marketplace, stocks that are better quality than the market appreciates. Australia is a good place to be investing.”
Great Lodha equities
But ultimately, the audience was swayed by the case put forward by Lodha for investing in global equities.
“The last 10 years have been very good for Australia,” he said.
“I think the next 10 years, from a global development perspective, will be a lot more focused towards consumption – and you don’t have that much, unfortunately, in the Australian market.
“When you look at opportunities on a global basis, yes you’ve got problems in Greece, Italy and Portugal, but you have a number of market opportunities which are growing irrespective of what’s happening in the external environment.
“Apple sold $1 billion worth of phones in Asia in 2007. It sold $13 billion worth of phones in China in 2011.”
Lodha said investors will do well “if you can find those companies that will grow their earnings irrespective of their domicile of listing”.
“I’ve given you some representative examples of companies which I think are doing good things on innovation, good things on the technology side, good things on the health-care side, good things on the consumption side and good things on the financial side,” he said.
According to Lodha, investors have “a lot more playing room or a canvas to paint on” when they have a global field of companies to choose from.
“And the last point I’d make is that a global equity fund includes Australia,” he said. “So if I find investing in Australian companies [attractive], I’m there. This is a fund that can give you the best of both worlds.”
Fidelity’s Battle of the Asset Classes forum takes place in Melbourne today and in Perth on Friday.
