Global stock markets have become obsessed with a narrow group of winners, such as chipmaker Nvidia and obesity drug manufacturers Novo Nordisk and Eli Lilly, at the expense of the broader technology and healthcare sectors.
“The markets love a winner,” said Alex Crooke, manager of the Bankers Investment Trust. “You’ve just got to be careful of overpaying for a perceived winner when you’re missing out on the breadth of things.”
Although markets are narrow and concentrated at present, he believes investors will eventually be rewarded for looking at broader opportunities across the healthcare and tech sectors, and beyond.
He highlighted healthcare in particular, where the big GLP-1 obesity drug creators have “sucked in all the money”. Meanwhile, Nvidia has drawn a lot of attention from the wider semiconductor space.
As a result, investors are overlooking other companies such as GlaxoSmithKline and AstraZeneca, which are attractively valued. (Bankers Trust holds AstraZeneca, Novo Nordisk and Eli Lilly.)
In the tech sector, the trust owns Taiwanese Semiconductor Manufacturing Co. (TSMC), which Crooke argues is “a safer bet” than Nvidia. The latter is a high-quality company but its shares are expensive and it is “quite a crowded trade”, he said.
TSMC meanwhile has a 90% market share manufacturing AI chips designed by Nvidia, Broadcom and others. Even if a competitor eats into Nvidia’s market share, TMSC will still manufacture the chips, whoever designs them.
Furthermore, TSMC is expanding its production facilities in the US to benefit from government spending on semiconductor chip manufacturing via the CHIPS and Science Act.
The trust invests in TSMC via American depositary receipts, which trade at a premium to the company’s Taiwan-listed shares – a premium he believes will persist due to higher demand.
Crooke expects the semiconductor theme to enjoy another couple of years of strong growth and has broad exposure to it, including the trust’s second-largest holding KLA, which provides testing equipment that is critical to the semiconductor manufacturing process. Its share price gained 77.4% in the year ending 1 July 2024.
The trust also holds two Japanese companies in this sector: Disco, which manufactures semiconductor processing and tooling; and Shin-Etsu Chemical, which provides chemicals for etching semiconductors.
Elsewhere, Crooke is looking for ideas that will benefit from electrification and the transition to net zero. The trust owns Schneider Electric in Europe and Hitachi in Japan, which provide grid equipment that will speed up electrification.
In terms of regional exposure, the trust is overweight Japan (a 13.3% allocation), where its financials and tech stocks have performed well, and the UK (14.7%).
Crooke expects today’s general election to usher in a period of political stability that should reassure international investors and lead to a re-rating of UK-listed stocks.
The Labour party’s plans to stimulate housebuilding will have a multiplier effect through and beyond the property sector, he said, and the trust owns housebuilder Vistry.
The trust is divided into regional sleeves, managed by portfolio managers from Janus Henderson Investors who are based locally, with Crooke making overall asset allocation decisions. He recently reduced the sleeves from six to four by combining China with the rest of Asia and amalgamating the UK into Europe.
Crooke is currently paring down the portfolio to 100 stocks because the smallest positions were not enhancing performance. Whereas a regional manager might previously have held a couple of names in a sector, he wants to “back ourselves to pick the right company”.
Deputy fund manager Mike Kerley, who ran the Asia sleeve, retired earlier this year. He has been replaced as the trust’s deputy by Jamie Ross, who helms the European portfolio.
Sat Duhra, who worked with Kerley on the Asian equity desk for 12-13 years, now runs the Asia book. Jeremiah Buckley in Denver continues to manage the trust’s pan-American equities and Junichi Inoue in Tokyo oversees the Japan sleeve.
The £1.3bn trust announced its results last week for the six months to 30 April 2023. Its share price return (21.5%) and net asset value total return (17.5%) both outperformed the FTSE World index (16.6%). Its largest holding, Microsoft (a 4.4% position) has made the strongest contribution to returns so far this year. The trust has also pulled ahead of its sector over the long term, as the chart below shows.
Total return of trust vs benchmark and sector over 20yrs
Source: FE Analytics