Interview With Kathleen Anderson

by Kathleen Anderson – 31 January 2020

Many investors are getting unnerved by the stretched valuations in the US market and unsure of what to expect for the upcoming US presidential elections in 2020. With that in mind, we had a quick catch up with Kathleen Anderson for a short interview to understand more about her take on this current situation and how we can navigate through this period.

  1. Please tell me more about ClearBridge Investments’ investment strategy/philosophy. Is there a set of rules in place?

    ClearBridge Investments is committed to delivering long-term investment results through authentic active management. We construct focused equity portfolios through stock selection that is based on bottom up fundamental research. Our goal is to deliver differentiated returns compared to market benchmarks that add value for investors over time. Our portfolios feature high active share, meaning they differ substantially in composition and individual equity weightings compared to their respective benchmarks.

    While we share a common investment philosophy, we do not follow a strict set of rules but instead give each of our investment teams the latitude to apply their specific portfolio construction processes to the strategies they manage.

  2. Can you also share how ClearBridge Investments’ funds get their investment ideas, and how portfolios are constructed?

    Investment ideas are sourced from several areas of the firm. ClearBridge Investments maintains a central research platform of 14 analysts who each cover a specific economic sector such as healthcare or financials. These analysts provide stock recommendations to the portfolio teams. The portfolio managers themselves, as well as portfolio analysts who support several teams, also research investment ideas which entail not only fundamental analysis but also regular meetings with company managements as well as external research firms.

  3. Reviewing the year of 2019, how did ClearBridge Investments’ funds perform relative to its benchmark?

    All of ClearBridge Investment’s 36 primary fund strategies delivered double-digit positive absolute returns in 2019, with notable relative outperformance from our International Growth, International Growth American Depositary Receipt (“ADR”) Environmental, Social and Governance (“ESG”), Sustainability Leaders, Select and Small Cap strategies.

  4. The past few years have been a boon for the US equity markets. Do you think that it is overvalued now and why?

    US equity market valuations, as measured by forward price-to-earnings ratios, are close to a 10-year peak. When viewed in the current environment of historically low interest rates, US stocks are not as expensive as they seem. In fact, we believe that valuations could continue to increase in 2020 as has been the trend in past periods ahead of an economic peak. In addition, a resumption of earnings growth after a flat 2019 would also support higher valuations for the US market.

    Chart 1: Valuations Not Stretched Relative to Past Peaks

    Data as of Dec. 31, 2019. Source: JP Morgan. P/E: Price-to-earnings ratio. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

  5. In addition, many investors are also worried about the upcoming US presidential elections in 2020 and ongoing trade tensions. How would you advise to navigate through this period?

    The easing of US-China trade tensions with the January signing of a phase one trade agreement has removed a major uncertainty weighing on US and global equities. However, we acknowledge that many risks still remain, not the least of which is the upcoming US presidential election. At ClearBridge Investments, we seek to own companies that are more reliant on their own execution than dependent on macroeconomic or geopolitical trends.

    Across our portfolios, we continue to focus on investing in high-quality large cap companies with quality balance sheets and stable free cash flow as well as smaller cap companies that are on the path to profitability. We also favor dividend paying companies whose income payments can provide a measure of stability should volatility escalate. We believe all of these company characteristics to be especially important given late-cycle dynamics and elevated political risk as we look to the November 2020 election.

    Chart 2: Dividend Stocks Look Attractive - % of S&P 500 stocks with Dividend Yields > 30-year Treasury Yield

    Source: FactSet as of 9/30/19. Past performance is no guarantee of future results. Indexes are unmanaged and not available for direct investment. Index returns do not include fees or sales changes. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

  6. What do you also think of the Asian and emerging market markets given their under-performance as compared to the US markets in the past years?

    We see reasons for optimism in 2020 that are underpinned by policy moves. China and Japan continue to stand ready to provide liquidity to their economies should there be signs of economic weakness. In past cycles, increasing money supply has supported stock values after a several month lag, with the manufacturing sector picking up soon after. International manufacturing Purchasing Managers’ Indexes (“PMIs”) seem to have stabilized with China’s PMI showing improvement. The recently struck truce in the US-China trade war should be supportive for developed Asia and emerging markets.

    These regions could also benefit from more constructive currency trends as easing by the US Federal Reserve could stem the recent strength of the US dollar. Emerging markets underperformed relative to developed markets this past year, which we believe is a good setup going forward. We have seen some good performance out of small cap emerging market stocks recently and continue to find interesting ideas in the space. We are most optimistic about investments related to the Asian consumer, particularly in China.

  7. Given this backdrop of rising volatility for 2H2019, what is the sector/market that retail investors can look out for?

    We think 2020 will be as much about the impact of accommodative economic policies as rising volatility. Economic and political dynamics are shifting in a way that we believe will lead to a period of rising nominal growth and reflation in the real economy. While some assets are clearly trading at lofty valuations, many of the sectors, regions and companies that will benefit from this environment remain significantly undervalued.

    As investors embrace a more constructive outlook toward the global economy, we expect a powerful rotation into companies with cyclical operating leverage. This will favor non-US markets that have lagged for much of the past decade including Europe, the United Kingdom (“UK”), Asia and emerging markets.

Important Information

Source: Legg Mason Global Asset Management and ClearBridge Investments, an affiliate of Legg Mason Global Asset Management

This document, provided by Legg Mason Asset Management Singapore Pte. Limited (“Legg Mason”) (Registration Number (UEN): 200007942R), is for information only and does not constitute an offer or solicitation to buy or sell any units in any fund.

The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice.

Although information has been obtained from sources that Legg Mason believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice.

Neither Legg Mason nor any officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this document or its contents. This document may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this document may be restricted in certain jurisdictions. Any persons coming into possession of this document should seek advice for details of, and observe, such restrictions (if any).

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.

Issuer of this document: Legg Mason Asset Management Singapore Pte. Limited

 

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