Bell Asset Management fund chief Ned Bell sees return of value in stocks

After a year and a half of blistering gains in global sharemarkets, Ned Bell believes buying opportunities could be just around the corner.

Ned Bell, chief investment officer of Bell Asset Management. Picture: Britta Campion

After a year and a half of blistering gains in global sharemarkets, Ned Bell believes buying opportunities could be just around the corner.

In fact, the chief investment ­officer of global quality specialist investment boutique Bell Asset Management is gearing up for another period like the first quarter of last year.

Back then, when markets had collapsed 30 per cent, the “buys” were everywhere. This time they will be more select, he told The Australian.

“We got a lot of buying opportunities in the first quarter of last year, in companies we had always loved but were just too expensive,” Mr Bell said.

“We’re now warming up for another one of those periods. Not in the context of the market necessarily gaping down as much as it did, but we see a lot of volatility between now and the end of the first half of next year.”

Wage inflation pressures, along with supply chain disruptions, and growing China risks promise to supply the volatility the market has largely avoided since the depths of the Covid crisis, Mr Bell said.

And with global markets plunging on Friday in the worst drop of the year, the new coronavirus variant and its potential economic impact only add to the uncertainty.

“You’ve effectively got three or four quite big macro issues that are all aligning when markets are at their highest,” he said.

“It’s more company-specific this time. The supply chain disruption issue doesn’t look to be going away anytime soon. And I’m not sure that’s necessarily priced into a lot of earnings estimates for next year. So we suspect you’ll start to see even very good companies that are very expensive get sold off.”

The growth-at-any-price strat­egy is coming to an end, with much more dispersion in performance between high-quality and low-quality companies, he predicted. It is with this backdrop in mind that Mr Bell is launching a new global sustainable fund, as the investment manager looks to attract a portion of the environmental, social and governance money flooding into the market.

The new global sustainable fund, which launches on Monday and is open to retail and wholesale investors, will mirror its select ­equity strategy that has been available to institutional investors since 2016.

The new offering is different to the competition, Mr Bell says, because the fund is not following the reams of money pushing into renewables or green investments. Instead, it is repeating its tried-and-true strategy of seeking out high-quality companies that meet its ESG criteria.

“It’s a pragmatic, integrated approach to ESG investing. And the carbon footprint of the fund is incredibly low. It’s 75 per cent lower than the benchmark,” Mr Bell said.

The carbon intensity of the MSCI World Index, calculated as the scope 1 and scope 2 emissions per $US1m of sales, is 131. The MSCI world ESG leaders index sits at about 78. The carbon intensity of the Bell Global Sustainable Fund is 33.1. “There’s a lot of active decisions we’re making to essentially not invest in companies that don’t get past our initial screens, such as transportation businesses, utilities, and basically anything that’s got a huge carbon footprint,” Mr Bell said.

The quasi-passive approaches in the market mostly screened and eliminated companies based on their current ESG scores. But a lot of alpha could be captured through the improvement of these scores, he added.

The approach meant “investing in companies that might today be rated a single-A company from an ESG perspective, but then, as time goes on, they improve their metrics in better communication, they take more proactive measures from an environmental or social perspective and, as a result, their scores ­improve”.

“That’s what’s happened in our portfolio and it’s correlated with us generating good performance, which is really important,” he said.

On a one-year basis, its select fund, which the sustainable fund will mirror for retail and wholesale investors, has returned 31.6 per cent before fees, just a touch above the MSCI World benchmark’s 31.3 per cent. Net of fees, the return sits at 30.8 per cent.

On a five-year basis, the fund, net of fees, has returned 17 per cent per annum, compared to the benchmark’s 15.8 per cent.

“It’s not just about screening out energy,” Mr Bell said. “There’s a very high correlation between good ESG outcomes, and high-quality companies. The top-quality companies are more profitable, so from a social perspective they’re much more willing to spend money to step up for their employees or suppliers.

“Home Depot spent $850m in additional leave and benefits to support their staff during the pandemic. Nike in many ways did the same thing: they didn’t leave their suppliers hanging out to dry during Covid. They stepped up and accepted orders in product they knew they weren’t going to sell.”

Other companies the fund holds include wind turbine maker Vestas Wind Systems, bike rack maker Thule, outdoor products maker YETI, as well as big names such as Microsoft and Alphabet.

The fund has no money invested in China because it doesn’t pass its social or governance screen.

“When it comes to Asia, it’s a real challenge,” Mr Bell said. “If you split developed Asia and emerging Asia, you’ve got Japan on the developed side. And it’s still a struggle, the companies have to want to get better. It feels to me like it’s a long haul.

“And then in developing Asia, particularly China, from a governance perspective, we’ve had issues with Chinese companies since day dot. And from a social perspective, we find it very problematic to the point where we just can’t put money there.”

Originally published as Bell Asset Management fund chief Ned Bell sees return of value in stocks