Perpetual is taking advantage of a strong run in US banking stocks to buy into out-of-favour consumer staples and healthcare stocks.
The fund’s global equities portfolio manager Garry Laurence said the rise of Amazon and increased competition in generic drugs and uncertainty about “Obamacare” has created an opportunity to buy quality defensive stocks at good prices.
“We are going the other way, taking profits from the banks and buying into consumer and healthcare stocks,” Mr Laurence told the The Australian Financial Review.
In consumer staples, Perpetual has bought into Nomad, a US-listed company which owns European-based frozen food brands such as Birds Eye in Britain.
It has also invested in large cap stocks such as Mondelez and General Mills, which Mr Laurence said have been sold off as investors have become worried about valuations.
“What we are doing is trying to buy businesses in the consumer space that have strong brands which won’t be displaced by technology shifts.”
Mr Laurence said there are also opportunities in the media sector even as investors mull over the brave new world where content creators such as Disney are preparing to go directly to their consumers.
“The content creators – there are only really a handful of them – they will get paid and if they go direct to consumers they will make more money,” he said.
Perpetual is an investor in 21st Century Fox and is upbeat about its prospects.
“Every few years you get these concerns about tech shifts impacting these media companies but they have continued to evolve over 10, 15 and 20 years.”
While Mr Laurence said the fund has cut weighting to the US banks after the post-Trump surge, it is a long-term investor in the Nasdaq exchange, which he believes is more of a technology business than a financial one.
“A stock exchange is a huge technology platform that enables people to trade and creates a market place,” he said.
While exchanges prefer higher volatility and therefore more trading activity, Nasdaq is winning from the Exchange Traded Fund boom, through licensing its index and through activity on the exchange.
Nasdaq also sees an opportunity to apply its exchange technology in other marketplaces such as airlines, which are using market models in how they price their products.
The fund also has a position in IBM – one of the older listed tech stocks which has fallen out of favour with investors.
Mr Laurence said IBM Watson has been leading the charge on artificial intelligence. The company has been pitching its wares to different industries as a means of cutting costs and boosting revenues. So far it has made its greatest strides in healthcare.
At a multiple of 10.5 times earnings, Laurence said it’s an “incredibly cheap” stock as weakness in its hardware business has weighed on share price.
But Mr Laurence said its prospects in artificial intelligence and cloud computing are bright.
Perpetual is one of several funds looking to challenge the dominance of Platinum and Magellan in global equites.
Mr Laurence said that the fund has a “value” style, and said the average price to earning ratio of the fund is around 13.5 times, below the 16.5 times of the MSCI World Index.
It is also a buyer of Asian stocks. It owns several Chinese stocks in the healthcare, search, technology and consumer staples sectors.
Perpetual has around $750 million in the fund and is up more than 15 per cent to August 1, beating the market by 5 per cent. Over five years, the fund has returned 21.4 per cent per annum, beating its benchmark by 3.3 per cent per annum.