Understand emerging markets opportunities and the American Century advantage.
By Trevor Gurwich - July 8, 2019
U.S.-China trade relations have undoubtedly ratcheted up market uncertainty. But returns have been good this year, and despite sell-offs in May, we’ve seen that there are still attractive investment opportunities around the globe.
Which kinds of companies could benefit from the current trade war, or from the end of trade tensions? Or, could certain businesses thrive either way? My team looks for these win-win situations. We design our portfolios to be robust whether there’s resolution to the trade war or whether it lingers on.
In my latest video, I share why a detailed portfolio construction process is key to navigating this volatile trade environment. Click on the link below for the full discussion.
We do think that there's going to be continued volatility and that volatility is going to be around the trade wars and the issues that the United States and the Chinese government today have in coming to a resolution on that trade war.
2019 has been a pretty exciting year. Returns have been good so far. We had some surprises, though. In May, we were expecting a trade resolution—or at least some type of détente—with China and President Trump. However, that tended to go the other way. So, it was more of a “sell in May” type of event.
The China trade issue with the United States is one that is extremely complex. It is one which goes over multiple cultures; it goes over different time periods of decision making; and there are expectations on each side that are very different.
What this means as a portfolio manager is very detailed attention to portfolio construction. How do you set up your portfolios so that they can be robust whether there’s a resolution to this trade war or whether this lingers on for longer? And a lot of that is finding opportunities that might be win-win types of situations, whether there’s a trade war or relief from that.
There is a company we really like in China called Zhongsheng. Zhongsheng is essentially an auto dealer. We like this company because one, we’re going up against some very easy comparisons. 2018 was a very difficult year for Zhongsheng with double-digit declines in their sales on the back of all this uncertainty. But we believe that if this continues, we will see stimulus measures by the Chinese government to help accelerate auto sales. Zhongsheng is essentially selling Audis and Mercedes and Lexus, and what we think we’ll see is an acceleration of sales once those stimulus measures come—if there’s a continued trade war or trade war tension.
However, on the other side—if there is some type of resolution—we do believe Zhongsheng will benefit because what will happen: tariffs will come down, U.S. cars are going to go down from 40% [tariffs] (where they are today), to 15% or zero, and that will cause all the auto manufacturers in China to have to lower prices and again accelerate car sales. In this situation, with the company trading about eight times earnings with over 20% forecasted earnings growth, we think we have a highly compelling risk/reward opportunity ahead.
The name we like in the UK right now is a company by the name of Moneysupermarket.com. Moneysupermarket.com is essentially a comparison pricing website, and they help consumers compare pricing of insurance, household services and money services. So, in other words, if you’re looking for a new insurance policy for your house, a mortgage, a loan, or a new utility provider, Moneysupermarket will help you find the cheapest option. Why we like it now especially is because they have changed the way they have organized their algorithms and essentially used artificial intelligence to provide better output to the customer. They find the right customers that are already looking for the right services and are able to push that information, that data to them.
We do think that currently the US market is still pretty strong, pretty robust, employment's high. There's a lot of consumer confidence, has a lot of small business confidence, and if we can overcome these trade war concerns, we can potentially stop the decline in sentiment.
We believe in taking an active, global approach in small-cap investing.
Senior Portfolio Manager Trevor Gurwich explains why the larger opportunity set and domestic focus of global small-cap equities make them well positioned to weather market pressures in the current environment.
Sr. Client Portfolio Manager Laura Granger discusses ways to find growth opportunities outside the U.S. in a decelerating growth environment.
Sr. Portfolio Manager Rajesh Gandhi explains how his team finds ways to “connect the dots” to find growth businesses despite looming trade wars.
Trevor Gurwich believes portfolio construction is key to navigating the uncertainties of the ongoing trade tensions between the U.S. and China.
Taking a global approach to investing in small-cap stocks can offer diversification and performance potential through exposure to a greater opportunity set and the inherent inefficiencies of global small-cap markets.
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References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.