DIY Investor Magazine
/
2015 Issue
23
the US market is harder than it was when HINT was
launched; for these reasons the Trust is underweight
the region.
SO WHERE IN THE GLOBE ARE YOU FINDING
VALUE?
I’d say Europe and Asia are currently offering attractive
valuations. In Europe quantitative easing (QE) from
the European Central Bank has certainly grabbed
investor attention, but the investment case goes further
than this. Earnings, for one, are only just beginning to
recover; a stark comparison to the US (see below).
The euro is weakening on account of QE, providing
a boost to exporters. We’ve seen a reduction in fiscal
drag, as public sector cuts have been reducing
and receipts from tax revenues increasing. Coming
alongside a recent drop in ‘effective’ interest rates
and cheap oil, this is all putting money in consumer’s
pockets.
In Asia we are particularly encouraged by the
increasing focus on shareholder returns. In China
the fight against corruption and the shake-up of
state-owned enterprises (SOEs) is improving capital
distribution. Capital and labour movement are freer
than before and the People’s Bank of China (PBoC) is
providing stimulus in selective areas. Expectations and
earnings are also low which means the Trust is finding
some great buying opportunities on a case-by-case
basis.
ARE YOU FINDING ANY SECTORS OR THEMES
PARTICULARLY ATTRACTIVE?
Telecommunications is one area we like. At the end
1990’s many of the big players in this space were very
profitable. Foreseeing the rise of mobile internet as
the next earnings driver they invested heavily in data
licenses for their networks. They were correct, but
communications technology took longer to develop
than expected which meant that effective mobile
internet did not become a reality until 2007 upon
the invention of the smart-phone by Apple, and has
only recently started to drive incremental revenues.
Regulators around the world added to the technological
headwinds: attacking the tariffs operators charged,
driving down returns.
Following a period out in the cold we think two
important drivers are now in place for revenues to
start growing again. Firstly, increased pricing power
is coming with increasing data. For those that have
invested heavily in 4G networks this is translating into
growing profitability as customers become more likely
to use more data if its access is quicker.
FORESEEING THE RISE OF MOBILE INTERNET AS THE
NEXT EARNINGS DRIVER THEY INVESTED HEAVILY IN
DATA LICENSES FOR THEIR NETWORKS.
