Shares bounce to be short-lived: Platinum

Markets may soon test their March lows but in the medium to long term, ‘good returns’ can be earned, says Platinum.

CEO of Platinum Asset Management, Andrew Clifford. Picture: Adam Yip

The recent bounce in equities will likely be short-lived and markets may soon test their March lows, Platinum Asset Management boss Andrew Clifford has warned, as he revealed the group’s flagship $10bn Platinum International Fund tumbled 11 per cent in the March quarter.

“Our short-term view is that markets are likely to return to the lows of March and possibly fall further as markets continue to grapple with the economic fallout of the coronavirus pandemic,” Mr Clifford wrote in the fund’s quarterly update, published on Thursday.

“Our medium to long-term view is dictated by the value that we see in the market and what we have in the portfolio. We are finding significant opportunities to add to both new and existing ideas … and, as such, are of the view that good returns can be earned over the next three to five years,” he said.

Surprisingly, some of those opportunities include travel-related businesses, which have been among those hardest hit in the fallout from the pandemic.

Mr Clifford also expressed a note of caution regarding the recent performance of market darlings, noting that the favourites of recent years “have not seen the valuation adjustments we would expect given the increasingly uncertain environment”.

Platinum’s international fund, which is co-managed by Mr Clifford and Clay Smolinski, underperformed its benchmark, the MSCI World Index, which fell 9.7 per cent in the same period.

Despite the fund underperforming over the three months, it fared better than the benchmark in the second half of the quarter, when markets around the globe took a beating as the virus spread around the globe.

“As the gravity of the economic impact of COVID-19 and the lockdowns started to be better understood, markets subsequently collapsed 17 per cent in the remaining weeks of the quarter,” Mr Clifford wrote.

“As markets fell away the fund’s lower net invested position helped reduce the downside in performance. In these last weeks of the quarter … the fund fell 12.3 per cent, outperforming the market over this period.”

Mr Clifford slashed the fund’s net invested position from 84 per cent to 60 per cent over the three months, with its cash holdings increasing from 7 to 16 per cent. Short positions were lifted from 7 per cent to 16 per cent in the same period.

The fund exited positions in Chinese food delivery company Meituan Dianping, Indian bank ICIC and Chinese liquor company Kweichow Moutai, and trimmed positions in Samsung, Micron, Intel, Facebook, Alphabet, Tencent and Ping An insurance, among others, before stepping back in to buy up stock in Samsung and Micron.

It also invested over 5 per cent of the fund in new holdings, with a focus on biotech, healthcare and travel-related businesses, Mr Clifford said.

Six of Platinum’s eight funds underperformed their benchmarks in the quarter, while its Asia and Healthcare funds bucked the trend.

Its unhedged fund, managed by Mr Smolinski, returned -18 per cent for the three months to March end, compared with the benchmark’s -10 per cent.

The performance was especially disappointing because the fund had increased its cash holdings and reduced its exposure to cyclicals prior to the worst of the collapse, Mr Clifford said.

“The simple observation is that value has not provided any protection in this selldown. Indeed it has been the expensive and loved sectors that have fared much better,” he said.

Looking ahead, the economic recovery can only begin when people get back to work, Mr Clifford predicted.

“While the rebuilding will start the day we get back to work, it will take some time before we can recover to the previous highs in economic activity,” he warned as he predicted the market would anticipate the recovery well ahead of time.