This is a regular feature from the AFR completed a couple of weeks back.
Monik Kotecha is the Chief Investment Officer at Insync Funds Management.
Do we have further to fall or have we passed the worst?
A surge in cruise bookings is evidence of the potential for travel to bounce back, says Kotecha.
Insync is positive on equity markets despite the near-term carnage. The ongoing COVID-19 tragedy and the uncertainty around when the virus will no longer greatly hamper society, means the negative economic data will keep market volatility elevated in the short term.
However, history is on our side as the average recovery from the bottom has been between 27 to 39 per cent within a year of the low point.
The unprecedented size of the fiscal stimulus by governments around the world including the US, who are spending almost $US6 trillion relative to a roughly $US20 trillion GDP, and aggressive reductions in interest rates by central banks, should provide a significant buffer to the downside in the global economy.
Where are you looking for opportunities?
Two areas where we are finding new opportunities on the market pull back has been in selective pharmaceutical companies and global franchised quick service restaurants, where takeaways or home delivery make up a significant part of their businesses.
Across the world, large franchisors will become even more dominant versus small businesses. When the local pizza shop or coffee shop closes, which is the unfortunate reality of the current crisis, what is going to replace it? It's going to be a Domino's or Starbucks franchise.
What's your thesis on Apple and how it is placed given the expected fall in consumption?
“Luxatility” is a major megatrend for Insync. These are products and services at premium price points that provide utility-like customer needs. Essentially, Apple doesn't sell people units. It sells units of people on Apple.
Consider that for the first time since they were launched in 2015, more Apple Watches were sold last year than watches by the entire Swiss watch industry. A remarkable achievement!
Changing a band can be complicated with classic watches. Because of this, many customers will end up paying more for Apple Watches over time than for Rolexes. Apple's wearables business – which includes AirPods, Apple Watches, and Beats headphones – would be a Fortune 150 company as a standalone entity.
Upcoming 5G technology, which will enable new functionality like augmented reality, will be an important driver to start accelerating the replacement cycle for iPhones and Apple’s other devices which reportedly stands at a billion devices.
Encouragingly, recent anecdotal data suggests iPhone sales are up significantly in March in China which bodes well for global sales when COVID-19 spreading slows and countries take economic steps to open up again.
You re-entered pharmaceuticals recently. What drove this decision?
We have been out of pharmaceuticals for the better part of four years because of accelerating patent-cliffs, the rapid rise in generics, weak R&D pipelines and the political pressure around pricing.
A selective group of pharmaceutical companies have since developed a strong pipeline of new innovative products in areas such as cancer, which is the fastest growing therapeutic area in terms of drug sales, that will deliver growth in excess of global GDP in the years ahead.
What megatrend do you see as most likely to do well over the next couple of years and which company is best placed to capitalise on this?
We are certainly more bullish about the recovery in travel than many of our peers. Consider this, and it's really quite amazing, that bookings for 2021 cruises have risen 40 per cent compared to 2019 on CruiseCompete.com in the last 45 days. Who would have thought so, considering the recent chaos on cruises, which just reinforces human’s insatiable desire for experiences and travel.
Disney is not only well positioned for a recovery but is likely to consolidate its position as a dominant media business. Its new streaming service, Disney Plus, recently passed 50 million subscribers worldwide.
This is significantly ahead of the company’s target of 60 to 90 million by 2024 and positions them in an even stronger position with their unmatched brands and scale as theme parks and cinemas start to open their doors again.
Any podcasts, reads or shows that have caught your attention recently?
As we move into a more paranoid world of greater surveillance, our family have been engrossed watching “The Capture” on the ABC, another great BBC production.
In a world where our images are constantly caught on CCTV, the series captures a world in which security forces don’t simply spy on citizens but manipulate images to ensure that “justice” is served.
Finally, any working from home story worth sharing?
It is most amusing watching my neighbour’s dog being taken out for the fourth walk of the day and the look of dismay on her face.
One can understand why spending on pets has increased by 28 per cent during the crisis and supports Insync’s pet humanisation megatrend.
Disclaimer
Equity Trustees Limited (“EQT”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Insync Global Quality Fund and the Insync Global Capital Aware Fund. EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.