Reality check for growth stocks near, says Platinum’s Andrew Clifford

A reality check on a “speculative mania” in growth stocks around the world could be just weeks away, says Platinum’s Andrew Clifford.

Andrew Clifford says the market is ‘in the midst of a pretty traditional, good old speculative mania in growth stocks’. Picture: Adam Yip

A reality check on a “speculative mania” in growth stocks around the world could be just weeks away, according to one of Australia’s best-known active managers of global value funds.

While it’s hard to see the catalyst for a correction, Platinum Asset Management boss Andrew Clifford believes that value and quality will do better in the inevitable pullback.

“We are in the midst of a pretty traditional, good old speculative mania in growth stocks,” Clifford says. “When it ends, you cannot know, but we do know that it will come to an end. For those who stay at the party too long, it will be unpleasant.”

The bold prediction came ahead of a speech overnight by US Federal Reserve chairman Jerome Powell at a virtual gathering of the world’s most powerful central bankers for the 44th annual Economic Policy Symposium, which economists said would be a “prime opportunity for Powell to preview upcoming inflation framework changes before rolling them out officially at the September FOMC meeting”.

But the flagship S&P 500 share index has already surged 56 per cent from its bear market low five months ago — faster than any bull market since WWII, while the Nasdaq has risen 76 per cent, a rally exceeded only by the later stages of the dotcom bubble of the late 1990s and early 2000s.

“I do suspect we are within weeks or months of (sharemarket) highs,” Clifford says.

“Anyone who says it’s not like the tech bubble wasn’t around in the tech bubble.”

Platinum has increased its exposure to semiconductors, particularly around 5G, in the past year. It also scooped up bargains in software and biotech shares around the lows in March.

“They have done OK for us, but you still would have made more money being in the FANG stocks,” Clifford concedes. “There was some good buying to be done, but not much time to do it.

Clifford says that, from an economic point of view, the coronavirus represents “the most dramatic thing in history and with that came the most dramatic and rapid policy response in history”.

“When you’re looking at your playbook of how these things unfold, the least helpful thing you could have done was to rely on historical experience,” he says.

Clifford is acutely aware of the fact that fund flows are tied to performance and Platinum caught a tail wind in recent months from a significant turnaround in the Asia fund. After underperforming its benchmark on a one and three-year basis, the Asian fund swung to outperformance of 11 per cent over one year and 2.9 per cent over three years as the Chinese market performed strongly off its March lows.

While it takes time for performance to generate inflows, the strong performance from the Asian fund scored a $9m performance fee that wasn’t generally expected in the full-year results.

The encouraging turnaround in the performance of Platinum’s Asia ex-Japan strategies — albeit just a quarter of the business — illustrates how quickly market performance figures can change.

“Our portfolios are extraordinarily different to the traditional index and in some respects our performance in the rest of the business globally, given how different we are, is not as bad as it might be,” Clifford says. “Even though we were very conservatively positioned, in the drawdown from the top of the market in February to the March low, we were about two-thirds of that.

“That’s not as good as we would have hoped, given how we were positioned, but we’re in this extraordinarily long period of growth stocks outperforming all else.”

Despite its enviable long-term return of 11.5 per cent per annum since inception in 1995, the flagship Platinum International Fund — which makes up about two-thirds of the business — pretty much tracked the market since the global financial crisis and in the past couple of years has lagged well behind its benchmark, owing to its underweight exposure to the NYFANG stocks.

“We certainly have no aversion to those types of stocks, but as this huge performance and valuation differential has opened up, we have migrated the portfolio more and more to the opportunities elsewhere that we perceive to be more interesting and for the moment, they’re not performing, and certainly have struggled in the environment of the last six months.

“We’ve very bullish long-term on copper and that’s a classic example of something where the story had a setback as a result of COVID. But if you look at spending in places like China and ­Europe — infrastructure and renewables — it looks pretty promising over the next year or two, but the stockmarket is yet to really embrace that, although copper prices are back up nicely.”

The International Fund has increased its weighing to a number of copper miners in the past year or so while reducing exposure to stocks such as Alphabet, Facebook, Tencent, Alibaba and PayPal, albeit such stocks still comprise a few per cent of total funds under management.

“I doubt we’re going to get anything from the Fed that upsets the applecart,” Clifford says.

“But the fuel on the fire of economic growth (from stimulus) is already in the market.

“We know that these fiscal programs and the JobKeeper-style programs around the world are rolling off — some will be extended — but the problem is some of the longer-term things that people want to do, like infrastructure spending, take time to get into the system. So the question is do we have enough fuel to keep the fire going or does it just slowly fade away a bit here.”

As well, if economic growth starts to bounce back in a sustainable way, he worries that it might “suck in the funding and away from financial markets”.