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Platinum boss plays to strengths in world ‘gone crazy’

Vesna Poljak
Vesna PoljakMarkets editor

Platinum boss Andrew Clifford has doubled down on his conviction that the days of high valuations for concept stocks are coming to an end.

It’s not the first time Mr Clifford has sounded off on the spectacular returns that investors with no regard for profits or moats have enjoyed. But this time, the Platinum chief investment officer has the bond market on his side.

Platinum boss Andrew Clifford: Those who have acted on that impulse a year or two years ago “are in a world of pain”. Dominic Lorrimer

Reflecting rising inflation expectations, US 10-year Treasury yields are rising and growth stocks reverse their edge in an environment where the risk free rate climbs, and the accelerating economic cycle erodes the scarcity of growth premium.

“It is interesting to me that at this stage we are still gripped by speculative mania in high growth stocks, and the premise, the valuation of these, has been all about low interest rates and them remaining that way for the foreseeable future,” Mr Clifford said on Wednesday.

“The reality is the interest rate that counts – the bond rate – is in a steady upward trend in most markets and if not back where it was pre-COVID, it’s certainly very close.”

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The US 10-year is yielding 1.36 per cent, and a vote on the $US1.9 trillion ($2.4 trillion) Biden stimulus package is expected in the House this week. It started the year below 1 per cent.

His sense is that “everyone recognises it, but no one’s acting on it”, meaning inflation risk and its implications for which investment styles succeed for stockpicking. Also, the penalty for being wrong, or simply wrongly timing a rotation away from growth, has been severe underperformance.

Those who have acted on that impulse a year or two years ago "are in a world of pain," Mr Clifford said.

Platinum itself has used shorting selectively, and quickly, against the Nasdaq or Russell 2000.

There are still "crazy prices" out there and "the managers who don't participate in that are going to do well", he predicted.

Hunting ETFs

But as for the index shorts, Mr Clifford said the more exciting short bets are in fact exchange traded funds: "The ETF world is incredibly fast to create baskets of exciting concepts so what better thing to short than that?"

Platinum would rather own LG Chem, which it does in the Platinum International Fund, alongside Amadeus, the travel software business, Takeda, and Ping An. "These are reasonable things to own in a world that has gone crazy and some of them still represent very good value," Mr Clifford said.

"The more cyclical parts of the market are showing strong performance."

Platinum Asset Management after-market on Tuesday reported a return of performance fees in its first-half profit which rose 14 per cent to $90.4 million. Its shares rallied more than 6 per cent in Wednesday to $4.63.

A turnaround in investment fortunes and consequent evidence that outflows have slowed follows years in the wilderness where Platinum refused to deviate from its style, but suffered from underperformance in a hot market.

The international fund beat the market over the past quarter and one year, by 4.7 per cent and 2.7 per cent, respectively, but that’s not the case over five years, where its relative performance is minus 3.1 per cent.

The manager has appointed Clay Smolinski to co-chief investment officer, and Mr Clifford and Cameron Robertson will co-manage the Asia fund following the departure of portfolio manager Joseph Lai last year.

Also, Nikola Dvornak will add responsibility for the global portfolios.

In generalised terms with respect to high watermarks, the Asia strategies have recovered all of their underperformance, while the international strategy has a bit more to go.

Vesna Poljak is the Markets editor. She covers equities, bonds, currencies and the economy with a special interest in the investment industry, hedge funds and accounting. She is based in the Sydney newsroom. Connect with Vesna on Twitter. Email Vesna at vpoljak@afr.com
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Summary | 2 Annotations
Platinum
2021/02/24 05:28
Andrew Clifford
2021/02/24 05:28