This year many fund managers, especially those with a value-tilt to their style, have thought that now is finally their time to shine, after so many false starts in the last decade or so. One firm which is not of this belief is Swiss-based Atonra Partners, which came top of SharingAlpha’s global large cap equities funds category for last year due in part to its backing of growth stocks.
Eric de la Chauviniere, head of institutional sales at the firm, told Fundeye: “The market thinks that inflation will be only temporary, that it will be only in 2021. And then it’ll be finished.”
This is at the crux of the value versus growth debate, is rising inflation the start of a change to a new economic era or just a temporary issue?
Looking at the response of central banks, it seems that the world’s major institutions believe it is a temporary problem, judging by their monetary policy responses. The ECB recently surprised some by not hiking interest rates and remaining accommodative.
This would suit Atonra’s global equities fund as it contains many of the growth names that outperformed so well in 2020. The reasons why inflation hurts growth stocks moreso than their value counterparts is well documented although for Mr de la Chauviniere, he said that it is because growth companies borrow more to keep up with capital expenditure. Thus, the companies are more sensitive to increases in interest rates in the long term, which obviously increases the cost of borrowing.
Whatever the economic technicalities for a decline in growth stocks this year, the firm does freely admit that for a short period this type of holding was impacted. However, rather than this being the dawning of a new age of investing, Atonra believes it merely shows a great entry point into growth names, which due to their success last year were now trading on some racy multiples.
Mr de la Chauviniere said this rotation into value names ended in April and since then, as has happened so many times before, growth stocks are where the smart money is being placed.
The move into value was heightened by the reopening of the economy after the pandemic with the current economic boom putting the global supply chain under pressure, hampering fast-growing players to meet the underlying demand.
Thematic
While many fund managers espouse finding the right company first, Atonra has seven main themes which it views as the source of global revenue going forward. These are AI and robotics, medtech (or bionics as the firm dubs it), greentech (renewables etc), fintech, mobile payments, security including cyber security and space. '
While many of the sectors which did well on the re-opening of the global economy such as commodity companies were in the value bucket, Atonra believes that technology and greater automation are the real keys to the future of the economy.
The firm consists of 50 percent of its employees working on the research side, many of whom are engineers or have PhDs. Eric Balossier is head of semiconductors for instance and described how the firm works its thematic process.
“first we look for semiconductors in our holdings, mostly towards either the power transformation, the emerging applications in healthcare, or the emerging AI, computation workload,” Mr Balossier told Fundeye.
He went to describe that once a leading theme is found, then the next step is to find a company with a leading market share within it. The fund has an investment horizon of around three years so short term share price volatility is not an issue as long as they view the company has a decent economic moat which it can maintain.
One name mentioned by Mr Balossier is Nvidia, known to most as a computer graphics card maker. However, he said, ‘they're really moving to the whole AI solution, transforming way beyond being a chip and graphic cards company.”
This fund and the firm behind it are true believers that the world is moving towards being cashless, making a greater use of biotech due to aging demographics, more electric cars (it has held Tesla since shortly after its IPO) and other foundations of a tech driven tomorrow. With Mr Balossier stating that the ‘correction’ at the beginning of the year somehow ‘cleaned the exaggeration of the market [towards tech company pricing]’ now may be the right time to top on the growth names that have dominated for so long.
