Platinum has acknowledged its returns have not met expectations of clients and advisers, but says its investment philosophy will remain unchanged in the face of the firm’s turnaround strategy.
Its flagship $6.2 billion Platinum International Fund has returned 6.4 per cent per annum over five years to 29 February versus returns of 12.5 per cent by the MSCI World.
In a webinar for advisers, co-chief investment officer, Andrew Clifford, said: “There’s a fine line between explaining what has happened and making excuses and I want to be clear that there is no question our performance has been below expectation but there are reasons for that.”
The firm takes a contrarian investment approach seeking the best risk/rewards across the region, sectors and themes in areas that are out of favour, being index agnostic and using shorts and cash.
Morningstar previously discussed how the firm’s benchmark unaware process can be problematic and is impacting funds under management.
Shaun Ler, equity analyst at Morningstar, said: “Platinum’s bouts of underperformance in recent years mean it has struggled to consistently grow FUM. This is due to the firm’s benchmark aware investment approach, which produces portfolios and investment returns that often don’t resemble its indexes and can be patchy.
“The investment team is astute but investors should brace for periods of uneven performance and earnings given the firm’s contrarian investment style and concentrated client cohort.”
Platinum chief executive, Jeff Peters, has committed to a two-part reset and growth strategy to address this, but Clifford said this will not include any changes to the investment philosophy.
He particularly flagged a challenging market backdrop over the last five years as well as not participating in stock market darlings such as the Magnificent Seven as being reasons for underperformance.
“We have questioned what’s going on, are we not executing on our strategy? When we think about our stock picking, we have confidence that we are picking good stocks in the context of the markets we are investing in.
“I believe our approach is differentiated to our peers and that brings genuine diversification. We don’t have a top 10 index stock in our top 10 which is very rare, and the other element is having the different approach means we are generating returns from a different part of the market.”
Regarding the Magnificent Seven stocks, which include Alphabet, Nvidia and Tesla, he did not believe the outsize returns will be able to continue.
“They have delivered 25 per cent per annum since 2018, the S&P 500 was way behind this at 9 per cent per annum. This has made it a difficult environment for our approach to investing. Secondly, for those seven stocks to deliver 25 per cent compound for six years is extraordinary and is extreme, and the probabilities don’t favour outsize returns for a small group of stocks continuing.
“The Magnificent Seven earnings have been strong, but there is evidence this is fading for one or two of them; valuations are generous but justifiable. But they are each a well-told story and widely owned. This is not the formula for long-term outperformance.
“Should we have owned them? We did have holdings in at least three but not in such a large size of the index, and we did sell them. Facebook was a missed opportunity, for example. The odds favour these stocks providing much lower returns in the future and always with the possibility of setbacks.”
