What’s the fund?
This month we are taking a closer look at the Antipodes Global Fund. The fund is an unconstrained, long-short global share fund that seeks to generate positive returns above it’s benchmark in all market conditions. The management team define themselves as being pragmatic value in that they seek both traditional deep value companies as well as growth companies being mis-priced by the market.
Antipodes was founded in 1 July 2015 by the Portfolio Manager and CIO, Jacob Mitchell. Jacob was previously the deputy to Kerr Neilson at Platinum Asset Management, where he spent 14 of his 22 years of experience. Jacob is supported by Graham Hay (23 years’ experience) and Andrew Baud (15 years). Staff own 76% of Antipodes with the remainder held by Pinnacle Investments, their administration and marketing partner.
They implement a fundamental value focus to analyzing companies and operate in a niche within global markets; being the identification of underappreciated companies in the midst of structural change. Their view is that markets have a tendency for ‘irrational extrapolation’, or pricing in the current circumstances in perpetuity, which presents opportunities on both the long and short side through patient, fundamental research.
Where does it fit in your portfolio?
The Antipodes Fund fits the requirements of the Thematic Bucket as its underlying investment philosophy is to identify investments based on broad ‘cluster’ or global ‘themes’. These can be societal, sectoral or country specific, but all are focused on purchasing an undervalued company that will benefit from substantial earnings growth.
At present, they believe that US domestic companies and global developed market defensives (like infrastructure and utilities) are expensive compared to their trend and therefore ripe for a correction. They believe that European, Japanese and Korean domestic sectors are comparatively more attractive and offer a greater margin of safety. Further, they have an increasing exposure to Chinese technology and related businesses that have been sold off due to the trade war as well as industrial conglomerates throughout the world undergoing much needed transformation.
During Jacob’s previous tenure, he was able to achieve excess returns of 5.7% per annum over the benchmark in the Platinum Unhedged Fund and 9.9% in the Platinum Japan Fund, over the last 7 years. It is this time spent focusing on the Japanese and Asian markets that we believe warrants investing into Antipodes over the alternatives, as we believe Asia will be the growth driver for the global economy in the years ahead but is generally underrepresented in managed fund portfolios. The fund has grown from inception to around $6.5bn under management in 2019 reflecting the strength of their investment process.
We prefer the Antipodes Fund because we believe the opportunities available offshore are more attractive than those in Australia and the value-oriented approach implemented by the managers will complement well with the growth focus of the other international managers. The Antipodes team have a great deal of experience investing throughout Asia, including China, India, Hong Kong, Japan and Korea, which results in a natural bias of this fund towards the East. The importance of Asia is continuing to grow as the centre of financial markets gravitates towards China. We believe Antipodes is the Australian manager best placed to provide outsized returns from this transition and that this will provide substantial diversification.
What does it invest in?
The fund is high conviction, expected to hold between 30 and 60 individual companies, has a focus on capital preservation and the requirement for a ’margin of safety’ in all investments. They also take an active approach to managing currency, understanding that obvious under and overvaluations can be used to boost returns over the long-term.
The fund has a highly diversified portfolio and varies substantially from the MSCI Index which holds around 60% in US equities. The current geographic exposure is as follows:
Importantly, the funds net exposure, which is the combination of their long positions less their short positions, is just 63%.
The largest current holdings are similarly spread across the globe with five highlights being:
- Facebook: They were attracted to Facebook’s underwhelming valuation following the anti-trust and privacy issues that arose in 2018 and remain focused on the huge usage growth that continues to deliver on each of Facebook’s platforms. Most importantly, they highlight that Facebook has stopped thinking about ‘safety’ and is once again embarking on major innovation projects including e-commerce, digital currency which should lead to further monetization.
- Siemens: Antipodes see value in Siemens recent change in strategy. The company spent many years dragging down European indices as management sought to acquire every business possible but struggled to combine disparate units in a profitable way. Due to investor pressure the company is now simplifying and releasing substantial value to investors, with the sale of its European power assets a particularly positive decision. The company continues to hold strong positions in important sectors like automation hardware and software which they believe are undervalued.
- Samsung: Samsung fits into the computing/connectivity bucket in the portfolio due to its substantial operations in manufacturing semi-conductors, batteries and flash memory for the likes of Apple, Sony and Nokia. Antipodes believe the company was oversold due to macro issues like the trade war and the complex generational ownership transfer occurring in Korea. They see substantial value in the operating business, supported by strong demand from key customers whilst the modernization of Korea will see increasing dividends and shareholder returns via buyback.
- Alibaba: Alibaba is an incredible business, being the dominant business to business and business to consumer e-commerce provider in China. The company operates the successful T-Mall and Tao Bao sites among many other businesses. Alibaba was established as an online version of the wholesale markets that occur all over China and has successfully evolved numerous times in the face of increasing competition from outside and within China. The company’s investment in Ant Financial which dominates the online payment landscape in China, offers further upside as it continues to expand into investment, insurance, credit and other financial products.
- Tesla: Tesla is a high profile short of Antipodes selected on the basis that the company has been over hyped as a ‘disruptor’ and will have little chance of delivering on inflated expectations. This position has been profitable and is expected to generate further returns as the likes of BMW and Mercedes-Benz launch much anticipated electric models in the coming months.
How has it performed?
The short-term performance has been weak adding just 2.6% over the 12 months to 30 June but long-term returns are solid at 10.5% per annum since inception, slightly above the benchmark. The fund’s weak short-term performance has been due to an overweighting to Chinese and other Asian technology companies which fall within the Connectivity / Compute and Online services clusters, but which have been hit by the US-China trade escalations. The Software investment, including Microsoft, and simplifying Industrial Conglomerates like Siemens added to returns. Importantly, this is a long-short fund which has carried substantially less exposure to the market, at just 60%, meaning the returns have been delivered at lower volatility and risk.
What income does it provide?
As with all managed funds, the Antipodes Global Fund must distribute all income and realised capital gains each year. Therefore, distributions are dependent on both the performance of the underlying investments and whether any investments are actually sold. As an actively managed strategy the fund receives minimal dividends and the majority of returns come in the form of capital growth and realised gains. The distributions since inception in 2015 are as follows and have averaged around 4% per annum with the intention to be paid semi-annually:
- 2015-16 – 3.16 cents per unit (2.33%)
- 2016-17 – 2.18 cent per unit (1.35%)
- 2017-18 – 9.24 cents per unit (5.37%)
- 2018-19 – 9.04 cents per unit (5.42%)