Josh Snyder, global investment strategist at GQG Partners, told InvestorDaily understanding the dominant sectors in different markets and how they differ is crucial for investors.
In the US, the largest companies are dominated by technology stocks such as Apple, Microsoft and Alphabet, whereas in Australia the list is dominated by banks and materials companies like CBA, NAB and BHP.
“I would say that a lot of US investors are also very biased against those types,” Mr Snyder said.
“Last year, broadly speaking, we were overweight areas like energy, and we had a lot of conversations with folks that couldn’t understand why. We had the same conversation with the same clients over and over again.”
He stressed that investors need to maintain an open mind when looking beyond their own borders to understand markets they are less familiar with.
“I do think that if you’re an Aussie-based investor, to give a little bit of credence to the idea that some of these things within the large-cap tech space that are justified,” Mr Snyder said.
“Whether you’re getting the fundamentals, the free cash flow, the market shares of the businesses, and it’s just not the sort of thing that you’re used to, it’s not unique to an Australian audience.
“US investors need to do the same thing and also have to open your mind, so to speak, and give credence to [the fact] that there are other areas outside of just say large-cap tech that will perform from a free cash flow perspective and underlying fundamental growth perspective.”
He added this mindset needs to extend to the way investors understand companies and the broader economic environment.
“We’re trying to think outside these barriers that are static – value and growth – and really think in terms of environments change, companies change, and we need to be growing, we need to see some trajectory of growth,” Mr Snyder added.
“Price is what you pay, value is what you get. We do need to take a very specific approach in terms of just looking at the world on a stock-by-stock basis to make those determinations rather than having say MSCI or Russell make those determinations for you.”
That mindset extends throughout everything, he said, and emphasised that adaptability can play a large role in finding returns.
“You want to find things that are growing because, in our view, if you’re not growing, you’re dying, but that growth can come from a whole host of opportunities. It doesn’t have to just come from technology and [communications] services … there’s a lot of nuance to these types of things,” Mr Snyder said.
“I think for us, again, it’s being adaptable. It’s having an open mind and really not just avoiding things that on a very backward-looking basis, may not show up as ‘growth’ or ‘value’.”
Speaking at the Morningstar Investment Conference Australia 2023 in Sydney on Wednesday, president and chief executive of Franklin Templeton, Jenny Johnson, echoed Mr Snyder’s sentiments on the importance of really understanding the market.
At the fund manager level, Ms Johnson said this extends to purchasing local asset management firms.
“People always have a bias towards their home investments,” she said.
“We actually buy local asset management and we have local asset management obviously in Australia, the UK but also in emerging markets, Malaysia, India … all over where we see opportunities, but 80 per cent of flows tend to go to local asset management.”