Click to edit Master title style Antipodes Portfolio update 26 March 2020 Antipodes | 1
Global factors: performance and valuation Click to edit Master title style Global factor performance* Composite valuation (30Y z-score) 2020 2017-19 2015-19 2010-19 Q4 2019 2019 Factors YTD 1 p.a. p.a. p.a (20.1%) Value 0.9% (7.0%) (3.1%) 1.4% (0.5%) Growth (0.1%) 1.8% 8.0% 9.4% 6.5% 0.8% 9.0% Profitability 3.3% 11.0% 11.1% 7.9% 5.0% 8.2% Resilience 1.7% (2.0%) 1.3% 0.2% (0.4%) Momentum (12m) 27.2% (5.4%) (4.0%) 5.1% (1.4%) 3.6% Factors returns measure global price performance of the highest to lowest quintile (cheapest to most expensive for Value). 1 As at March 17 th 2020. 15% 10% 5% High growth 0% Expensive 35% -5% -10% Factor valuations are a ratio of the median multiple of the highest -15% Low multiple to lowest quintile (cheapest to most expensive for Value), Cheap expressed as a z-score. Our approach to measuring multiples -20% comprises an equal weighted composite of EV/CE, EV/Sales, forward PE and EV/normalised EBIT. As at Dec 2019. -25% Jan-19 Feb-19 Mar-19 Apr-19 Jun-19 Oct-19 Jan-20 Feb-20 Mar-20 May-19 Jul-19 Aug-19 Sep-19 Nov-19 Dec-19 *Cumulative price performance of long low multiple/high growth and short high multiple/low growth strategies. Common currency terms. Source: Factset, Antipodes Antipodes | 2
Click to edit Master title style Coronavirus: Flattening the infection curve The unknowns … • Efficacy of various emerging treatments such as Hydroxychloroquine/Azithromycin • Correlation to colder/dryer climates • Extent/duration of any herd immunity CHANGE IN CASES – 7-DAY ROLLING CAGR TOTAL CASES – TEMPERATURE (CELSIUS, LOG SCALE) Source: John Hopkins University, Antipodes Partners. As at 24/03/2020 90.0% 1000000 80.0% 100000 70.0% 60.0% 10000 50.0% 1000 40.0% 30.0% 100 20.0% 10 Source: John Hopkins University, National Oceanic and Atmospheric 10.0% Administration, Antipodes. As at 17/03/2020. 0.0% 1 D1 D3 D5 D7 D9 D11 D13 D15 D17 D19 D21 D23 D25 D27 D29 D31 D33 D35 D37 D39 D41 D43 D45 D47 D49 D51 D53 D55 D57 D59 22-Jan 27-Jan 2-Mar 7-Mar 12-Mar 17-Mar 1-Feb 6-Feb 11-Feb 16-Feb 21-Feb 26-Feb RoW Italy Iran US Western Europe RoW x Italy and Iran Western Europe x Italy Spain Germany <10 10 - 15 15 - 20 20 - 30 France Recession severity will be highly dependent on the duration and effectiveness of the virus lockdown … shorter the better Antipodes | 3
Click to edit Master title style Stimulus measures announced Covid-19 started supply chain shock -> Global demand/credit shocks Supply chain shock/margin call: Stress in offshore USD markets that fund trade Central Bank USD swap lines Rates cut globally, US to zero Unlimited QE in the US Funding stress in domestic banking systems as €870b QE in Europe credit lines are drawn US banks can borrow from the Fed Fed to lend up to 3m Commercial Paper market Requires large scale fiscal stimulus to support household Demand shock/Solvency risk and corporate cashflows during lock-down US $2t package = 10% GDP Fiscal response Germany €750b = c. 20% GDP UK & France €300b each = 10% GDP Seeking approval to buy Corporate Bonds (IG) High Yield corporate tail risk Central banks will need to intervene and buy HY debt USD should weaken as $2 trillion in fiscal stimulus takes centre stage Banks much stronger than in 2009, HY tail risk lies with institutional/retail direct investors Antipodes | 4
Disruptive pressures building Click to edit Master title style Private equity buyer of last resort … US NON-FINANCIALS EBITDA MARGIN US JUNK DEBT AS % OF GDP 19% 12% Including technology 18% 10% 17% Leveraged loans 8% 16% 6% 15% Excluding technology 4% 14% High yield debt 13% 2% Source: Refinitiv, Credit Suisse research Source: Bloomberg Barclays, S&P, US Bureau of Economic Analysis 12% 0% 5 7 9 1 3 5 7 9 1 3 5 7 9 9 9 9 0 0 0 0 0 1 1 1 1 1 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Outside of the large software-internet stocks, US corporates have Source: Bloomberg Barclays, S&P, US Bureau of Economic struggled to lift profit margins in the current cycle. Almost all Analysis improvement in return on equity since 2009 has resulted from lower interest rates, higher leverage and lower tax rates – all of which have arguably reached their structural limit Antipodes | 5
Response in equity and credit markets Click to edit Master title style US EQUITIES: 6M ROLLING VOLATILITY AND CORRELATION MARKIT CDX NORTH AMERICA HIGH YIELD INDEX (BPS SPREAD) 700 70 Outbreak Source: Bloomberg. As at 17/03/2020 announced 650 60 Correlation 600 50 Volatility 550 40 500 450 30 400 20 350 10 300 250 0 2012 2013 2014 2015 2016 2017 2018 2019 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Antipodes | 6
Significant fiscal stimulus has arrived Click to edit Master title style Is debt monetisation the only way forward for the US? QE Inflates assets not activity, accelerates disruption Wealth Inflation/currency devaluation disparity Duration bubble collapses Social media echo chamber QE debt monetization / MMT Populism/ Polarisation Fiscal stimulus, pressure on rates Lower growth Trade wars and regulation Antipodes | 7
Monetary policy failure? Click to edit Master title style Fiscal policy takes centre stage, Europe/China have the most dry powder EC estimate to reach FISCAL SURPLUS STIMULUS PACKAGES IN PERSPECTIVE current 2030 climate and energy targets % of gross domestic product In today’s dollars $2.8t 4% 3,000 Germany/Europe has fiscal firepower 2% 2,500 0% -2% 2,000 FDR New Selected EC Recovery Act ‘Green Deal’ Deal -4% items (post GFC) 1,500 (post Great $1t $1t Depression) -6% $850b 1,000 -8% Apollo missions 500 -10% $150b Source: Bloomberg, Morgan Stanley Research -12% 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 1920 1940 1960 1980 2000 2020 2040 Source: EC, OPENEXP, EIB, McKinsey, Antipodes estimates United States China Eurozone (ex Germany) Germany Antipodes | 8
Longer-term outlook Click to edit Master title style • Long duration stocks are still priced for perfection • Beware growth and profitability traps • Coronavirus to force response from policy makers • Central bank failure/populism leads to fiscal stimulus • Europe and China have the firepower to stimulate, while domestic facing businesses are priced for a recession • A world that may decarbonise - generational investment cycle Look for great business at attractive valuations Antipodes | 9
Antipodes Global Portfolio Click to edit Master title style Social commerce Incumbent software platforms Enabling the future Uber SAP ST Micro Alibaba Microsoft Qualcomm Facebook Samsung Electronics Secular industrials Cleaner energy Pharma with pipeline GE EDF Merck Continental Siemens Roche Norsk Hydro Consumer incumbents Strong retail banks Tail risk protection Ping An ING Newcrest Yum China ICICI Barrick Gold Coke & Pepsi CapitalOne Credit Protection Antipodes | 10
Portfolio vs. benchmark weights and valuations Click to edit Master title style As at March 2020. Dec19 multiples use 31/12/19 prices over 2019 EPS. Our recessionary valuation scenarios use today’s prices over 2019 EPS post an earnings haircut; 30% for cyclicals/15% for defensives (ex Asia domestic), 20% for all Asia domestic. When applied to the global benchmark, the weighted average haircut is ~24%. The benchmark multiple has moved from 17.5x in Dec19 to 17x post earnings haircut (13x today). Source: iShares, FactSet, Antipodes Global Cyclicals = Commodities, Chemicals, Industrials, Autos/other durables, Hardware; Global Defensive = Internet, Software, Staples, Pharmaceuticals; Domestic = Retail, Housing & Construction, Media, Transport, Consumer/commercial services, Health services, Financials, Communications, Infrastructure, REITS Antipodes | 11
Cheap exposure to quality and growth Click to edit Master title style Cheap exposure to quality and growth Style exposures Percentile score of fully invested long and short books (50 = market median) 70 Cheap Above average High 60 Average Market median 50 Low 40 Expensive 30 20 10 0 Value Growth Quality Long Short Source: Antipodes Partners Antipodes | 12
A “pragmatic” approach to downside protection Click to edit Master title style Antipodes | 13 Source: Morningstar Direct
Appendix
Click to edit Master title style Global valuation clustering Stark contrast between long and short duration equities 22Y Z Score of EV/Sales relative to World (Price/Book for Financials) As at March 2020 Source: Antipodes Partners Antipodes | 15
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