Bottom up stock pickers need to take global view
The globalisation of markets is the biggest macro factor affecting fund managers who use a bottom up stock selection process, according to a top executive of a leading worldwide funds management firm.
T.Rowe Price vice president Darrell Riley said globalisation has led to best business practices being adopted around the world, as well as increased information and capital flows.
A result of this has been the ability to predict what will happen in developing markets based on the experience of developed ones.
Riley feels a clear indication of this phenomenon is the recent rise in intra-industry correlations.
“Intra-industry correlation, where you compare say one bank with another, is rising. This is why we believe taking a global integrated approach to investment management makes sense,” he said.
“There are lessons to be learned by looking at a bank in Australia and taking those lessons learnt and applying them to a bank in Singapore,” Riley explained.
When looking at investment opportunities, Riley believes using a global perspective can help easily identify industry sectors that managers should be looking to place their clients’ funds in.
Three areas he has identified as growth sectors in the future are energy, financial services and health.
In regard to energy, every country that has experienced major economic development has increased its oil consumption dramatically. According to Riley, the fact India and China are about to begin this journey toward economic development guarantees demand for oil and natural resources will be strong in years to come.
Similarly, people living in developing nations usually experience a boost in their wealth levels along the way, making the financial services sector attractive for future investment.
“As people around the world become more affluent they are going to need asset managers. We know it’s going to happen, so if you see this bottleneck then invest in front of the bottleneck and benefit from it over time,” Riley recommended.
Associated with an increase in wealth is an improvement in lifestyle and quality of life, and this flow on effect according to Riley is what makes health care an attractive sector moving forward.
“As populations become more affluent they spend more on health care. And it’s not just traditional medicines … a lot of it has to do with quality of life,” he said.
He cited hay fever medications as an example of the trend.
“You’re not going to die from hay fever, but billions of dollars get spent on hay fever medication,” he explained.
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