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Betting On Beat-Up Sectors: Nedgroup Shifts Exposures

Tom Burroughes, Group Editor , 30 September 2020

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Several parts of the global economy have been hurt by COVID-19. A fund that hunts for businesses that it thinks are attractively valued has recently loaded up on some of these affected sectors.

Pandemic-created slides in sectors such as leisure, travel and hospitality have prompted a fund run for Nedgroup, the private banking and investments firm, to boost holdings of these sectors as part of a “contrarian” mindset.

The Nedgroup Investments Global Flexible Fund has bought a number of stakes in firms in the first half of this year, including Booking Holdings; Wabtec (which makes equipment for railroads and other transport businesses); Marriott International and Swire Pacific, the marine services firm. Within the bond market side, it has purchased stakes in Uber, the ride-sharing firm; Royal Caribbean Cruises, and Carnival Corp.

“As bottom-up investors, if the market sells off from a high index price level but we are able to find attractively priced businesses to own, then we will own them,” portfolio manager Steven Romick said. 

Romick’s firm First Pacific Advisors has run the fund since mid-2013 when it partnered with Nedgroup Investments. The portfolio is structured around FPA’s Contrarian Value Strategy, which dates back to 1993. FPA's underlying strategy for the Nedgroup Investments Global Flexible Fund has $9.99 billion of assets under management.

“Risk exposure is not a constant and is dictated by what we see at the company level. If we find attractive risk/rewards, we will be more invested; if not, we will be less. We believe when global economies recover, investors will appreciate the merits of many of these unloved companies with deeply discounted valuations compared to the market,” Romick continued. 

FPA reckons that its track record as an asset management firm speaks for itself. Over a 20-year period FPA’s flagship fund for its Contrarian Value strategy has an annual total return of 9.17 per cent, whereas the S&P 500 returned 5.91 per cent over the same timeframe. In Q2 this year the fund achieved an overall gain of 15 per cent, with long equities held by the fund returning 22.29 per cent, outperforming both the MSCI ACWI and the S&P 500. As far as the Nedgroup Investments Global Flexible Fund is concerned, it delivered a price return of 14.91 per cent in 2019, although as of 31 August it is down slightly in 2020 so far, according to figures on its accumulation share class (source: Morningstar). 

“We have changed what we are willing to own. We never want to remain stagnant as investors. Technological innovation has secularly harmed many industries while other industries have benefited. As such, we have expanded our horizons and research capabilities and own more tech and internet companies, including some in China,” Romick added.

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