WEBVTT - Newton's Markham Recommends International Equities (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot Com, the radio, plus globile, lapt and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Katherine Cowdery. The stock market is retreating, on track

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<v Speaker 1>for its biggest drop in more than a month as

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<v Speaker 1>investors turn risk averse. Socks have fallen from Japan to

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<v Speaker 1>Europe as oils plunged into a bear market renews at

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<v Speaker 1>global growth concerns. Consumer companies are taking big losses as

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<v Speaker 1>investors worry about the health of the US economy. A

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<v Speaker 1>report reinforced concerned that American consumers are losing power as

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<v Speaker 1>wage gains remain as sluggish. We check the markets every

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<v Speaker 1>fifteen minutes throughout the trading day. Dow industrial leverage is

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<v Speaker 1>down eighty two points four tens of a percent trading

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<v Speaker 1>at eighteen thousand, three hundred twenty two S and P

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<v Speaker 1>five founded down twelve point six tents of a percent

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<v Speaker 1>at eight then AZDAC is down thirty nine points three

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<v Speaker 1>quarters of a percent at fifty four. West Texas intermediate

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<v Speaker 1>crude oil down forty six cents of barrel one point

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<v Speaker 1>one percent to spot gorolled up twelve dollars fifty cents

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<v Speaker 1>announced at ten year treasury down five thirty seconds with

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<v Speaker 1>the yield of one point five four percent. And that's

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<v Speaker 1>a Bloomberg business flash. Catherine Calderie, thank you so very much.

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<v Speaker 1>It is time now for the e t F report,

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<v Speaker 1>brought to you by Sector Spider et F S. Why

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<v Speaker 1>by a single stock when you can invest in the

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<v Speaker 1>entire sector. Visits sector spdrs dot com or called one

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<v Speaker 1>eight six sector e t F crops, our, cultural commodities

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<v Speaker 1>and rainfall. Maybe there's an e t F that can

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<v Speaker 1>help you make a bed house on All of that

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<v Speaker 1>is going to work out. Catherine Cawtery is back with

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<v Speaker 1>the day's et F report. Investors have turned against three

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<v Speaker 1>of the largest US crops, betting a timely rainfall will

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<v Speaker 1>further increase supplies of corn, wheat, and soybeans. Hedge funds

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<v Speaker 1>and other money managers are now holding a record wager

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<v Speaker 1>on further declines for weight. Sal Gilberti, president of two

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<v Speaker 1>Griam Trading, recommends taking a longer term view of agricultural

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<v Speaker 1>commodities through the use of his firm's exchange traded products.

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<v Speaker 1>Long term trends and corn, along with soybeans and wheat,

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<v Speaker 1>are the usage continues to increase. It's it's primarily driven

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<v Speaker 1>by population growth. Globally, the population expands by roughly seventy

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<v Speaker 1>five seventy eight million people per year. It's the equivalent

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<v Speaker 1>of the population of California doubling every year as new

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<v Speaker 1>added population on the planet Earth. Gilberti makes a case

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<v Speaker 1>for corn, saying it's used for fuel to fill up

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<v Speaker 1>your tank, is also an animal feed, and is used

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<v Speaker 1>to make paper and those recyclable plastic cups. Gilberti maintains

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<v Speaker 1>that E T N s that focus on agricultural commodities

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<v Speaker 1>should be included in a diversified portfolio. That's ther Bloomberg

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<v Speaker 1>ETF Report. I'm Catherine Colderie. You're listening to Taking Stock

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<v Speaker 1>with Kathleen Hays and pimp Box on Bloomberg Radio. What

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<v Speaker 1>do drug and discount stores in Japan, real estate in

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<v Speaker 1>Germany and a global food company based in Switzerland all

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<v Speaker 1>have in common? While they're the focus us of our

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<v Speaker 1>next guest, Paul Markham, Global Equities portfolio manager of the

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<v Speaker 1>Newton dry Fuss International Equity Fund symbol there s N

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<v Speaker 1>I e X and he is from Newton Investment Management,

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<v Speaker 1>helping to manage more than one billion dollars of customer assets.

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<v Speaker 1>He's based in London and he joins us now. Paul,

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<v Speaker 1>thanks very much for being with us. Tell us the

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<v Speaker 1>strategy that you mean that you that you use to

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<v Speaker 1>manage this fund because it is global in nature and

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<v Speaker 1>it covers a wide variety of companies. Yes, that's right,

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<v Speaker 1>good afternoon, and it's a pleasure to be to be

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<v Speaker 1>with you. Um. Yes, the fund is essentially an international

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<v Speaker 1>equity portfolio, which means that it invests around the world,

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<v Speaker 1>excluding securities or equities in the US. We try to

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<v Speaker 1>divertify the portfolio and have a wide range of geographies,

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<v Speaker 1>um and sectors represented. But we do use a thematic

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<v Speaker 1>backdrop of those big changes which we see socially, politically

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<v Speaker 1>and economically that we think will influence markets over time,

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<v Speaker 1>and we allow that to drive our stock selection, and

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<v Speaker 1>we have a fairly focused portfolio around sixty stocks on

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<v Speaker 1>the fund. You have a lot of big trends to

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<v Speaker 1>help you now. Of course, with the US Fed Reserve

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<v Speaker 1>maybe starting to continue on a path of tightening, and

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<v Speaker 1>the Briggs that vote in the Bank of England. I'm

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<v Speaker 1>just fascinated by the Bank of Japan and this big,

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<v Speaker 1>big turnaround we've seen in Japanese government bonds, the Bank

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<v Speaker 1>of Japan not going pedal to the metal on more

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<v Speaker 1>monetary stimulus, and we're going to think about what we're doing.

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<v Speaker 1>We've got the details on the fiscal plan from Prime

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<v Speaker 1>Minister Abby. What do you make of what's going on Japan?

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<v Speaker 1>What does it mean for the markets there and basically

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<v Speaker 1>your your global portfolio strategy. Well, I think that's you're

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<v Speaker 1>You're very right to put Japan in the context of

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<v Speaker 1>what could happen globally, because what we've seen quite often

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<v Speaker 1>with many developments in the macro economy is Japan really

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<v Speaker 1>leading because it's been the first major economy to really

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<v Speaker 1>have the problems of demographics really coming into play, for example.

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<v Speaker 1>And so what we're seeing is the Bank of Japan

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<v Speaker 1>really throw the ball back into the court of the

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<v Speaker 1>Japanese government. So what we're seeing is the potential of

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<v Speaker 1>monetary policy perhaps not being as strong an emphasized tool

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<v Speaker 1>of of economic policy going forward, and maybe more of

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<v Speaker 1>an expansion on the fiscal side, and what that means

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<v Speaker 1>in the near term and what we've been seeing over

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<v Speaker 1>the last few days is that the market has anticipated

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<v Speaker 1>that the b o J will no longer be buying

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<v Speaker 1>as many government bonds, and also potentially that the fiscal

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<v Speaker 1>burden for the Japanese government will expand. The bond yeld

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<v Speaker 1>to have really become far less negative. We had a

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<v Speaker 1>very significant move in Japanese government bonds over the last

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<v Speaker 1>few days, and that's been positive for the end and

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<v Speaker 1>we suspect that will also be negative for the market

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<v Speaker 1>going forward, given the Japanese market tends to be dominated

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<v Speaker 1>by exports oriented companies. Up the performance of the fund,

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<v Speaker 1>it's up about the two and a quarter percent in

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<v Speaker 1>one month. You're to date, though, down about the two

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<v Speaker 1>and in the context of Japan and wondering if you

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<v Speaker 1>could maybe give us a little thought about why some

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<v Speaker 1>of these holdings are in the fun Japan Tobacco, don

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<v Speaker 1>Quixote holdings. You've also got a holding in Japan Airlines.

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<v Speaker 1>Are you betting that the Japanese economy will continue to

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<v Speaker 1>prosper despite this lackluster stimulus package. What we've really tried

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<v Speaker 1>to do on the portfolio is to let the thematic backdrop,

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<v Speaker 1>which we see as being continued very sluggish chronic sluggishness

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<v Speaker 1>in the Japanese economy and indeed across many of the

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<v Speaker 1>developed markets. And what that's led to is us to

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<v Speaker 1>believe that in many cases, companies which are firstly perhaps

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<v Speaker 1>focusing on the lower end consumer or companies which have

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<v Speaker 1>exceptional return characteristics will prosper in this environment. So Don Dyuxote,

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<v Speaker 1>for example, is the Japanese equivalent really of a dollar

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<v Speaker 1>store UM, and it's run very much for profit, with

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<v Speaker 1>very much more efficient operating metrics than it's petitors domestically

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<v Speaker 1>in Japan, much more like a Western company, if you will.

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<v Speaker 1>On the for example, Japanese Airlines investment case, this is

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<v Speaker 1>a company which is very different to Global Airlines, has

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<v Speaker 1>twice the operating profit operating margin of many of its

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<v Speaker 1>global competitors, as a high dividan yield. The government took

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<v Speaker 1>it out of bankruptcy and made sure that it's pension

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<v Speaker 1>liabilities no longer we're on its balance sheet. So this

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<v Speaker 1>is something which we see as being very much a

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<v Speaker 1>special situation UM. And finally, companies such as Japan Tobacco

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<v Speaker 1>for many years a company with substandard returns relative to

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<v Speaker 1>competitors in the US or in the UK, for example,

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<v Speaker 1>but a company with exceptional global brands, we think of

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<v Speaker 1>very strong management team and rising cash returns. And I

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<v Speaker 1>think in this environment of financial repression and very low

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<v Speaker 1>bond yields, I think high dividan the yield will continue

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<v Speaker 1>to be the global investors an attractive phenomenon, even if

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<v Speaker 1>in the near term we may see some other pressure

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<v Speaker 1>on bond yields, which may see some of those yielding

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<v Speaker 1>stocks do a little bit less well in the market.

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<v Speaker 1>Bank of England big meeting on Thursday, they passed on

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<v Speaker 1>the rate cut in July many I mean, smalt pent.

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<v Speaker 1>They've got to do it and then give us more

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<v Speaker 1>details about their plan um equities companies in the UK.

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<v Speaker 1>Is that an area to stay away from? How do

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<v Speaker 1>you deal with that right now if you don't know

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<v Speaker 1>how Brexit is going to play out? Well, yes, absolutely,

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<v Speaker 1>I mean the Bank of England's um sort of quandary

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<v Speaker 1>is pretty clear. I think what we've been seeing in

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<v Speaker 1>the last couple of days is some comments from former

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<v Speaker 1>Monetary Policy Committee members at the Bank of England who

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<v Speaker 1>have suggested that Governor Carney doesn't have too much possible

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<v Speaker 1>further monetary stimulus to to to create UM, I guess

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<v Speaker 1>that's you know, current policy rate half a per cent.

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<v Speaker 1>We could potentially, and we did originally expect post Brexit

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<v Speaker 1>to see a cut to zero. UM. What I think

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<v Speaker 1>is becoming clear is that the post Brexit data has

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<v Speaker 1>got worse, but we haven't yet seen enough data to

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<v Speaker 1>justify that full jump down to zero interest rate repost

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<v Speaker 1>zero interest rate policy. So what I think will be

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<v Speaker 1>bothering the Bank of England is the idea that they

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<v Speaker 1>could cut rates completely to zero and then we see

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<v Speaker 1>a deterioration in real estate and the consumer economy further

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<v Speaker 1>down the line, and that will then mean that they

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<v Speaker 1>have very little room to cut rates any further. So

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<v Speaker 1>what I suspect may happen is that they may go halfway.

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<v Speaker 1>They could go for a twenty five basis point cut

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<v Speaker 1>or maybe something you know, unorthodox, like a ten basis

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<v Speaker 1>point cut. But at this moment it does seem that

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<v Speaker 1>the the market is rather betting on a disappointing rate

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<v Speaker 1>cup from Bank of England, given the strength of sterling

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<v Speaker 1>over the last few days. On the subject to the

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<v Speaker 1>equity markets in the UK, it is interesting to see

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<v Speaker 1>that we've had a really strong rally posts the sort

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<v Speaker 1>of Brexit collapse, and largely I guess that is to

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<v Speaker 1>do with the fact that the particular oriented towards exports

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<v Speaker 1>UM and that's something which has been very helped by

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<v Speaker 1>much help by a weaker sterling. However, looking forward UM,

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<v Speaker 1>it certainly seems that the prospects for the UK economy

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<v Speaker 1>in the near term are uncertain. It may be over

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<v Speaker 1>a much longer period of time that the UK is

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<v Speaker 1>able to establish itself once again as a very major

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<v Speaker 1>player on the world stage. And certainly we've seen so

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<v Speaker 1>far quite a lot of interest from many major international

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<v Speaker 1>trading partners to put some sorts of trading agreement in place,

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<v Speaker 1>but that can't happen until the Brexit process is finished,

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<v Speaker 1>and that could take some time to do so. I

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<v Speaker 1>think the UK economy will be um, you know, certainly

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<v Speaker 1>in a doubtful place for a period of time. The market,

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<v Speaker 1>I suspect will act quite cyclically. It may will be

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<v Speaker 1>a kind of risk on market for the next year

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<v Speaker 1>or two, and in the in the near term it

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<v Speaker 1>does feel that maybe there is scope for a little

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<v Speaker 1>bit of disappointment after a strong run. Paul marcam thank you.

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<v Speaker 1>So very much. Was looking at a global macro pictures

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<v Speaker 1>such a big factor for global equity markets and also

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<v Speaker 1>some of the individual holdings in his portfolio. He's Global

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<v Speaker 1>Equities portfolio manager for the Newton Drivers International equity fund.

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<v Speaker 1>Well movers and shakers are coming up on Bloomberg taking

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<v Speaker 1>stock Dave Wilson our Stock said it will be joining

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<v Speaker 1>in on Kathleen Hayes along with pim Fox and this

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<v Speaker 1>is Bloomberg h