March 31, 2020
March 31, 2020 | Adviser News
American Century Investments Updates
Focus, sustainability and opportunities
On Tuesday, 24 March we heard directly from our investment partner American Century Investments, manager of our Global Growth Strategies. They discussed their view on the current economic environment, portfolio positioning, and where they are finding investment opportunities.
Here’s what they had to say:
The impact on the global economy and profitability cycle will be very substantial across industry and geography. All businesses will feel the effects on government shutdowns and isolation policies in some form.
The two most important issues for now are;
- How long does the economic disruption last?
- What does the economic recovery look like?
Regrettably the answers to these questions are unknowable for the moment. For now, China’s experience may be a reasonable reference point and is therefore something to watch closely. As economic activity picks up in China, will new COVID-19 case volumes be muted or accelerate as business activity normalises?
Before the end of the year, we should hope that the health crisis is under control and the economic dislocation from the coronavirus disruption will have started to dissipate.
The consensus hope is that the prospects for the economy and corporate profitability look better into 2021, where markets are through the worst and returning to some form of normal.
The velocity of the recovery will be determined by how extended the crisis actually becomes and the business capability to weather the current storm. Large scale business failures and unemployment will dampen such velocity which is why fiscal policy is a clear focal point for governments- effectively extending a “financial bridge” to corporations and individuals to get through the next two to three months.
Dimensions of Sustainability
The portfolio management team has not varied its approach but recognises that in a crisis, sustainability becomes a very important variable in the Global Growth process.
While sustainability of earnings growth over time is a core tenet of the investment process it has multiple dimensions that include the durability of a company’s business model and its financial strength.
- Is the business model durable and independent of the ebb and flow of the economic cycle?
- Does the company have the financial strength to withstand the harsh, current economic situation and the ability to execute on business opportunities that lie ahead?
The only focus from corporates right now is that of survival. Do companies have sufficient liquidity to get through an extended period of distress? For the most part, the investment team feel positive about the businesses owned in the portfolio. To date the portfolio’s performance has been sound relative to the benchmark because of the above mentioned traits across all invested sectors in the portfolio.
The portfolio has holds two owner/ operators of wireless and broadcast towers; American Tower and Cellnex. Both businesses have long duration contracts (typically 5 to 10 years in length) with annual inflators and low variable costs. The 5G investment cycle will likely be a driver of future demand.
In addition, Cellnex has an opportunity to consolidate tower ownership- a process that is only beginning in Europe.
Healthcare has generally benefitted the portfolio. Holdings in life sciences, tools & diagnostic companies have held up reasonably well. Their business models are very durable and sustainable. Once their products are sold to hospitals, doctors and pharmaceutical companies they capture a large, recurring aftermarket in consumables.
Nevertheless, there has been some vulnerabilities in performance in some holdings. As bed capacity in hospitals is being prioritised for coronavirus patients, elective processes are being deferred impacting holdings such as Boston Scientific and Teleflex. This situation is likely to impact these businesses for at least the next quarter or two however the underlying growth drivers of these businesses has not changed and procedure volumes should bounce back.
Technology holdings in the portfolio have also had a mixed impact. Larger investments in enterprise software providers Adobe and ServiceNow have detracted. Both organisations provide mission critical software to their customers and benefit from a subscription revenue base with high renewal rates. While new business sales will be disrupted, the investment team believes these businesses are better placed than most to get through this period of disruption.
There has not been significant changes to portfolio holdings to date, but any material dislocation versus what the manager believes is reasonable would likely be an opportunity to add to positions.
Listen to the full webinar below:
The Zurich Investments Global Growth Share Fund is an international share fund for long-term investors who want to capitalise on the unique opportunities presented by companies with sustainable earnings acceleration. Our strategic investment partner, American Century Investments, manages the fund with the belief that accelerating growth in revenues and earnings results in significant potential for stock price appreciation. The focus is on inflection points in company fundamentals with a process designed to uncover stocks that can outperform as earnings growth accelerates, market expectations rise and multiples expand.
Zurich Investments are proud to have American Century as our strategic investment partner for the Global Growth funds. Find out more about the Zurich Investments Global Growth Fund, or the Zurich Investments Concentrated Global Growth Fund, or contact your Zurich representative to discuss how we can help you.
Important information: The content of this publication are the opinions of the presenter and is intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated March 2020, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such. Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich.
Past performance is not reliable indicator of future performance. GINN FVHHKJ.00012.ME.036. PNOE-015437-2020