Adviser Webinar: Macro matters, but so do stocks! image November 2015

Panic on slowing Chinese growth blinding investors to less obvious opportunities and risks

Jacob Mitchell, Chief Investment Officer, Antipodes Partners

Don’t confuse momentum with value, or low volatility with quality

As concerns about global growth spark selling across commodity-sensitive markets, it’s more important than ever for investors to avoid a herd mentality. And the latest turn of events on the geopolitical front has only increased risks to investors who respond to the wrong cues.

There are always good opportunities on offer, but investors must not confuse momentum with value, or low volatility with quality. It’s rare to be able to buy a great business at a good price. When such opportunities do arise, it’s usually due to mis-pricing resulting from irrational extrapolation around changes in the operating environment.

No matter what the turmoil and upheaval, the only way to combat being swept along by the tide is through independent thinking and, when the objective evidence supports it, taking a contrarian view.

Recent spikes in share price dispersions demonstrate the truth of this view. Popular passive strategies, which often ignore companies’ fundamentals, have been less successful than more active bottom-up approaches. As a consequence, many big ‘safe’ brands in Western markets are starting to look expensive, because they are seen by risk-averse investors as bond proxies, and are being priced as such.

And that’s where a calm and rational look at what China has on offer further demonstrates our approach at Antipodes.

Rather than trampling with the herd on fears of reduced Chinese growth, we see a very different story. China Resources Beer (CRE), is a case in point. Its earnings before interest, tax, depreciation and amortization (EBITDA) margins are seen by many as low relative to global peers. But we take the opposite view.

We like that CRE has been focused on growth rather than profit and now has the capacity to lift prices in the domestic Chinese beer market, where they already have 21% market share.

At Antipodes Partners we look for companies with ‘multiple ways of winning’.

Again, CRE is a great example. It already controls close to a quarter of the Chinese beer market, in partnership with the world’s second largest brewer, SABMiller. A recent takeover offer for SABMiller from Anheuser-Busch is likely to result in CRE gaining an even more advantageous position which represents upside to our original investment case.

In conclusion, it is crucial that investors understand that equity investment returns are driven by starting valuations combined with the on-going economic performance of the underlying business.

This sounds like stating the obvious, but determining what the starting valuation should be, and understanding how a business is likely to perform over the longer-term requires a deep understanding of the business and its market, in-depth fundamental research and a rigorous investment process.

That is the only way to create a high conviction portfolio of stocks which will preserve capital and outperform over the medium to long term. And now more than ever that is the steely view that investors should be taking.

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Fund Ratings

Antipodes’ funds, the global long short fund, Antipodes Global Fund and the Asian long short fund, Antipodes Asia Fund, were both recently rated ‘recommended’ by Zenith Investment Partners, the equal highest rating given to any fund in the 2015 Zenith International Shares Long/Short Sector Report.

Zenith - Rating Recommended





Zenith Disclaimer

The Zenith Investment Partners (“Zenith”) Australian Financial Services License No. 226872 rating (assigned October 2015) referred to in this document is limited to “General Advice” (as defined by the Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs.

Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website.Zenith usually charges the product issuer, fund manager or a related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessment’s and at