Pessimism about future growth in global markets is distracting from some of the more positive signs particularly around more resilient signs surrounding consumer appetite, according to Rathbones James Thomson.
There has been a growing sense of pessimism among fund managers, as the latest Bank of America Merrill Lynch Global Fund Manager Survey found.
“We’re in a, in a world starved of reliable growth, companies are struggling to grow consistently and most economies are close to stall speed,” said Thomson, manager of the £1.8bn Rathbone Global Opportunities fund.
The global equity fund manager said that not only had there been a slowdown in corporate growth, the standard deviation – or volatility – of their growth estimates was also rising.
The political backdrop has also become more bifurcated, leading to growing frustration about the distribution of wealth and different opinions about how to achieve growth.
“There is a frustration that growth isn't being spread wide enough, but people are totally bifurcated as to how they think you can achieve growth,” the FE Alpha Manager said.
Rathbones’ Thomson said there is also a growing realisation that US president Donald Trump is unlikely to be able to pull off the sort of policy and fiscal stimulus that previously boosted the US and global markets.
“He is sort of a quick fix guy with tweets and headline wins, but he can't possibly permanently increase the trend rate of growth,” he said.
As such, investors have been turning to growth stocks to meet their investment needs.
Performance of investment styles over 10yrs
Source: FE Analytics
As the chart above shows, the growth style has significantly outperformed the value stocks over the past decade as investors have moved up the risk scale in the low-rate, low growth environment since the global financial crisis.
Nevertheless, it has been “one of the most unloved rallies in history”, according to Rathbones’ Thomson, as the rally has been less broad-based and concentrated into a small number of high growth stocks, such as the FAANGs – Facebook, Amazon.com, Apple, Netflix, and Google-parent Alphabet.
“My fund is up 24 per cent [this year], and yet, I've never seen people more miserable,” he added.
Performance of fund YTD
Source: FE Analytics
“So, there is a high degree of scepticism about the state of the global economy. But, you know, the consumer is still strong and so are a lot of the companies that I am talking to who are more consumer-facing. That's an important part of the economy.”
As such, Thomson highlighted two companies that have told that Thomson what he needs to know about the global economy: Waste Connections and Costco.
The first is a US company that collects garbage.
“There is probably no better read on the health of the US consumer than a garbage company because they collect everything in a way,” he said.
“They know the state of the US consumer based on the amount of garbage and recycling and they are telling me they are not seeing any signs of slowdown in the US consumer.”
The second company is Costco, which has continued to expand, most recently in China where the opening of its Shanghai branch led to queues a kilometre long.
“That is not a business that is struggling to grow the way,” he added. “They are firing on all cylinders. Costco is the number one seller of fine wine, premium beer and diamonds [in China], it’s not just bulk loo roll.
“Clearly their proposition is resonating in China. They only have 100 stores in China, compared to 577 in the US. So, there's significant potential growth.”
Another interesting area for Thomson is the payment space where digital payments have changed the ecosystem and opened up the sector to new entrants and technology providers. It is somewhere the manager has been investing more recently, not least Mastercard and Visa– both top-10 holdings.
“I own a lot of different parts of that payment network there are a lot of people collecting on that chain and 60 per cent of the world's transactions still take place in cash,” he said. “So there is a significant growth runway.”
Another one of his best performing consumer-facing stocks this year has been Match Group – the owner of online dating websites such as Match.com, OK Cupid and Plenty of Fish – which has continued to grow strongly despite concerns over the
He explained “Around 40 per cent of people who are in a relationship now met on the internet, that’s up from 3 per cent five-to-10 years ago. Online dating is here to stay.”
The Rathbone Global Opportunities invests in a concentrated portfolio of under-the-radar and out-of-favour growth companies. The manager invests in “unblemished, innovative, differentiated, scalable and sustainable growth companies that are shaking up their industries”.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over the past three years, the Rathbone Global Opportunities has made a total return of 49.97 per cent compared with a 42.98 per cent gain for the FTSE World benchmark and a 35.33 per cent return for the average IA Global peer. The fund has an ongoing charges figure (OCF) of 0.78 per cent.