The rising tensions over global trade policy are prompting some top-performing international fund managers to look for the companies that can emerge as winners.
Fund managers from firms including AllianceBernstein, Causeway Capital Management and Janus Henderson are adding to positions in companies ranging from Italy’s largest bank to China’s largest e-commerce company, all in hopes of avoiding the fallout from a global trade war.
Chief among the corporate attributes fund managers are now looking for are either a strong domestic business that would not be significantly affected by import tariffs, or a dominant market position, or intellectual property that would prompt customers to continue to buy its goods regardless of additional taxes.
‘Growth stories’
“The impact of a tariff is becoming a bigger factor in our decision-making,” said George Maris, a portfolio manager of the $2.2 billion Janus Henderson Global Select fund. Mr. Maris has increased his position in companies such as Chinese e-commerce giant Alibaba Group Holdings that are dominating their domestic markets.
“Secular growth stories overwhelm the threat of increased trade frictions every time,” he said.
U.S. President Donald Trump said he was pushing ahead with tariffs on $50 billion of Chinese imports on Friday, and the smouldering trade war between the world’s two largest economies showed signs of igniting.
Mr. Trump laid out a list of more than 800 strategically important imports from China that would be subject to a 25% tariff starting on July 6 including cars, the latest hard-line stance on trade by a U.S. president who has been wrangling with allies.
The European Union, meanwhile, has challenged aluminium and steel tariffs imposed by the Trump administration at the World Trade Organization and has drawn up a list of goods it would hit with retaliatory measures.
The threat of tariffs, along with rising U.S. interest rates, helped sink global stock markets in February. Since then, major stock indices have recovered most of their gains, with the U.S. S&P 500 index up 4.9% for the year to date and the Stoxx 600 index of companies in the European Union up 2.5% over the same time.
Conor Muldoon, a portfolio manager of the $8.7 billion Causeway International Value fund, said that trade and other macroeconomic concerns are “presenting short-term opportunities.” The fund has been increasing its position in Italian bank UniCredit SpA, for instance, after its shares sold off in March following elections that renewed concerns about whether the country could exit the eurozone.
Mr. Muldoon’s fund is also increasing its position in durgmakers such as GlaxoSmithKline and Japan’s Takeda Pharmaceutical that have strong drug pipelines, he said. Shares of GlaxoSmithKline are up 19.5% year to date, while shares of Takeda are down 32% over the same time after it raised its $62 billion bid for Shire Plc.
Sammy Suzuki, a co-portfolio manager of the $77 million AB International Strategic Core fund, said that the threat of technological disruption in some markets was just as pressing a concern for some global firms as the impact of higher tariffs. As a result, his fund is focusing more on what he calls the “enablers”, which are back-end tech firms that do not trade at as high valuations as companies like Amazon.com and Netflix.
‘Tariff-resistant business’
Spanish firm Amadeus IT Group, for instance, provides the technology backing the reservation systems used by airlines including British Airways, Southwest, and Lufthansa Group. Shares of the company are up 20% for the year to date.
“Even if you wanted to, it’s difficult to rip them out of these companies,” he said.
Mr. Suzuki has also been increasing his position in European luxury goods makers such as Italian apparel firm Moncler and British alcoholic beverage company Diageo, both of which make products that should not be significantly affected by rising trade costs, he said.
“You can find tariff-resistant businesses that are in niches, but it takes work to find them,” he said.
