Growth-orientated managers of concentrated global portfolios are starting to use the old term ‘Nifty Fifty’ again, given the outlook for corporate earnings over the next few years.
On a trip to Australia earlier this month, Martin Currie’s CIO, James Fairweather, wondered whether the environment would be similar enough to that of the 1960s and 1970s to spawn a return of the Nifty Fifty. This is the term which was used for about 10 years prior to the bull market of the early 1970s to refer to 50 popular US large-cap stocks seen as buy-and-hold for long-term growth.
Now, Cassandra Hardman, a managing director of another growth-orientated concentrated manager – Johnston Asset Management – says her colleague, the firm’s founder, Richard Johnston, uses the term, but she is hopeful the environment does not get so “bubbly” that such companies become too expensive to buy.
“Richard (Johnston) talks about the Nifty Fifty because he was an investor in the 1970s. I hope it doesn’t get back to that,” she says. Johnston founded the firm, which is based in Stamford, Connecticut, in 1985. He worked for a firm called Eberstadt Investment Management during the 1970s.
Hardman is this week making her first visit to Australia for many years – the first time since joining the boutique global equity manager Johnston Asset Management in 1997. She is speaking with asset consultants, clients and prospective clients.
Johnston last year appointed Catallyst Advisors (managed by former asset consultant John Schaffer) as its first Australian representative, although the firm has had a large Australian client, Perpetual Investments, invested in its global concentrated fund since the fund’s inception four years ago.
Hardman said yesterday that the Nifty Fifty stocks tended to have an extreme premium, above what one would expect for their fundamentals, and the market had not reached that point “yet”.
Nevertheless, the premise that larger, more global, leading-brand “quality” companies will tend to outperform others over the next few years is a persuasive argument.
For starters, global companies tend to have a skew towards the growth of emerging markets. And they tend to have suffered less during the GFC (except financials) than more domestically orientated or smaller companies.
In Johnston’s case, the manager targets companies with secular (three-to-five-year) growth of more than 10 per cent. Hardman says that when the manager looks at the value and price of such stocks, the universe is not particularly large.