Platinum Asset Management

Valuation dispersion at extremes

Hamlin Lovell
Originally published in the January 2020 issue

Platinum generated its greatest outperformance between 2000 and 2002. As with some other active managers, this came in the aftermath of the TMT bubble. During this three-year period global equities underwent a peak to trough drawdown of c 50% while Platinum’s flagship international long/short equity strategy generated positive absolute returns. 

In 2019, valuation dispersion has, once again, reached extreme levels that might set the stage for a similar phase. Even advocates of passive management acknowledge that active managers tend to outperform at key turning points. That said, according to Platinum CIO, Andrew Clifford, “the most expensive parts of the market are not quite as extreme as they were in 2000”. Clifford has assumed the helm as part of a succession plan that saw the firm’s founder and previous CEO, Kerr Neilson (famously dubbed “Australia’s Buffett”), transition into a research and mentoring role. Clifford points out that the nature of market leadership is different. “Growth defensives are attracting the highest valuations, along with consumer staples, some of which have not really grown in five or 10 years,” he says. “Each quarter, consumer staples firms manage to portray growth in the business, and the market ignores the realities. It is not clear who would really want to own them, apart from quant funds and passive index trackers.” Neilson elaborates that, “Consumer staples are not the same companies that once attracted Buffet. They are losing pricing power as they face threats from own label manufacturing and the bargaining power of Amazon and other retailers. The sector should be lower in a few years’ time and is clearly vulnerable to rising rates.” Back in 1999, some consumer staples firms such as Unilever languished on high single digit PE ratios. 

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