During the first of our fortnightly portfolio and market updates focussing on the investment implications of the spread of COVID-19, Jacob Mitchell discusses how Antipodes views companies and sectors during a market crisis.
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Episode 1 Part 4 – Transcript:
Jacob Mitchell:
Thinking about which companies and which sectors come out of this in better shape, or are positioned well for a potential change in the regime.
We genuinely believe that the underperformance of low multiple stocks is – yes there’s arguably some cases where you could say that is justified by some of those sectors and some of those companies being in our view, traps – but there is also something that is just an outcome of lower interest rates.
What I would encourage investors to think about is, in a world where, if you think about Japan – and we communicated last year a lot about what we learnt from our experiences investing in Japan – was that even in a world of very low interest rates in Japan the equity risk premiums stayed quite high. That was because investors quite rightly understood that holding down interest rates encourages disruption and ultimately you do get the zombification of many companies, many sectors. You know, the weaker companies don’t go broke, returns on capital fall. You ultimately get protected not by avoiding low multiple stocks but by buying companies that are genuinely resilient.
In environments where stimulus starts to get traction there is definitely a period where economic growth accelerates and typically the cheaper cyclicals outperform. But don’t just buy them because they’re on low multiples, buy the ones that you think have ultimately got secular tailwinds which have been hidden by investor’s concerns around the near term economic environment.
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