Investors are overpaying for structural growth, according to Antipodes Global Investment Partners deputy portfolio manager and investment analyst Graham Hay.
Hay said while markets over the past few years have enjoyed a period of low volatility and falling rates, it was Antipodes’ observation that this has inevitably created distortions in financial markets.
“We’ve certainly, from the portfolio standpoint, tried to be very aware of the risks those distortions have created, and where it’s pragmatic, to try and profit from them both on the long and the short side,” Hay told an investor lunch in Sydney on Wednesday.
“Our contention would be that so long as global growth remains intact, and it shows every sign of doing so, that we’ll get a reset or recalibration of interest rates back to levels that are more appropriate for the growth and full employment situation that we find ourselves in today.
“The point we’re making today is that if you want to own growth in isolation, the valuation you’re having to pay for it is as high as it’s ever been – certainly going back to 1987, almost 30 years.”
Hay said the “seeming comfort” that comes with growth, profitability and quality these days is very expensive to own in isolation.
“So, while we’ve been living in a world of low volatility, we live in a world today of an extreme dispersion in markets – we’ve never seen such a wide differential between the haves and have nots in global markets,” he said.
“From our perspective, that’s interesting because it creates opportunities both long and short to participate in and profit from.”
Below is a chart showing the performance of the Antipodes Global strategy versus its sector and benchmark over the past three years.
