Finding value with Kate Howitt

--  |   08/04/2021 Text size  Decrease  Increase   |  
<p><strong>Lex Hall: </strong>Kate Howitt oversees Fidelity's Australian Opportunities Fund. She is also on the list of the top 30 Women Fund Managers as rated by Citywire. Today, I thought I'd check in with her to look at the outlook, her investing approach, and where she sees value.</p> <p>Kate Howitt, welcome to Morningstar. Thanks for joining us.</p> <p><strong>Kate Howitt: </strong>Thanks very much.</p> <p><strong>Hall: </strong>Now, the first thing I wanted to ask you was you guys use a bottom-up approach. That is, you look for companies with superior management, good cash flow, little debt. But I've noticed lately that your commentary, Kate, has a little bit more macro top-down focus. Is that you giving us any particular insights there? And should retail investors take something from that?</p> <p><strong>Howitt: </strong>No. Actually, that's more a quirk of our marketing where we want to make sure that the insights we get on stocks primarily go into the funds and unitholders of the funds. Having said that, we are probably more likely to be at a macro inflection point than we've been through the past decade, and it's pretty ironic that it wasn't the onset of the pandemic that brought about a rotation in stock markets. But here we are a year later now looking at a rotation of sorts in markets. So, we are at an interesting point.</p> <p><strong>Hall: </strong>And I suppose retail investors can't ignore what's happening throughout the world. They might look at a company and look and see whether it's got sound fundamentals, but it's nevertheless affected by what's going on elsewhere.</p> <p><strong>Howitt: </strong>Well, it all comes down to time horizon. So, for example, if you said in 1999, I'm a long-term holder and you happened to own the actual long-term winners out of the dotcom, so companies like Amazon and Google, it still took those companies, I think, about 16 years to regain their previous highs. So, if you are truly a long-term winner and you're not in a position where you might be a forced seller in a downturn, then it's fantastic to be able to take a long-term view. But you certainly don't want to be in the position where you've got so much of your portfolio in the markets that if there were a drawdown, you'd be a forced seller. That's not the way to position yourself.</p> <p><strong>Hall: </strong>And on that note, Kate, I suppose a question for investors is, how long should they stay in your fund to sort of get the value-add, if I could put it like that?</p> <p><strong>Howitt: </strong>Well, I'm certainly managing it for the longer term. I've got plenty of holdings in there that I've had for over a decade. So, I'm looking at a three to five-year horizon, and it's particularly important in a small market like Australia, you don't have that many opportunities. So, you do want to find the long-term winners. And also, we have capital gains tax. So, where you can identify those long-term positions, you want to sit there and let them accumulate rather than cutting the tax office in and out every couple of years.</p> <p><strong>Hall: </strong>OK. And I should point out that the Australian Opportunities Fund has&mdash;since its inception in 2012, it's outpaced the benchmark S&amp;P/ASX 200 Accumulation Index by about 1.8 per cent. How are you positioning, Kate, for your portfolio to benefit from the multitude of outcomes from vaccine distribution?</p> <p><strong>Howitt: </strong>Yeah. So, as you mentioned, it is a fund designed to capture the opportunities from bottom-up stock picking. Ironically, the way to do that is to try to minimize our other risks. And so, that includes kind of macro positioning risks, sector risks, factor risks. And so, I'm always trying to keep the fund in a fairly balanced position. I never kind of swing too far into individual sectors or individual thematics. So, different times, different holdings in the fund will come to the fore. So, right now, the more cyclical or kind of value holdings have been doing the heavy lifting in the fund. So, maybe names like BlueScope Steel, Lendlease Group, some of the smaller mining companies. Those are the ones that have been rewarded by the market over the last couple of months. But I still maintain my broad array of holdings into Commonwealth Bank on the banking side, Goodman Group on the property side, CSL on the healthcare. So, I always keep the fund with the best names I can find right across the market spectrum.</p> <p><strong>Hall: </strong>OK. And I should say we'll drill down into a few names in a video after this one. I noticed that Telstra is on your list of cash cows too, you use that term. What do you see there in particular?</p> <p><strong>Howitt: </strong>Well, we think that telcos run in broadest cycles around the technology upgrades. And so, half the cycle you've got the companies investing their CapEx very heavily, and then after that you get a couple of years of them being able to harvest. And so, we think Telstra is at the tail end of a very heavy CapEx period into 5G. And now, it will begin to monetize that and more of the customer base will buy 5G handsets and pay slightly higher pricing to access the 5G network, and that historically has been a good time to own Telstra. So, we think that there's really attractive cash flows that will come out of that business to support the dividend even as the NBN one-off payments roll off.</p> <p><strong>Hall: </strong>OK. Another stock you hold this Treasury Wine Estates, and they're facing a bit of strife from China. How are you factoring in that broad-based China risk and the tariffs imposed this week, for example? Does that alter your view at all?</p> <p><strong>Howitt: </strong>Well, the announcement this week was really just formalizing what we had heard the initial rumblings of a couple of months ago. So, we don't really think there's much information content in that. When the initial tariffs were announced, the market pretty much responded&mdash;you can kind of infer back from the share price that the market just kind of zeroed out the China line for that company. We think that's a bit simplistic. We think that some of the revenue that would have been earned from that line that wine because it's a luxury, it can be cellared for longer and held off for future vintages. That's part of the answer. The company was already going down a path of broadening out the brand. So, wine has historically been a kind of cottage industry where the brand attaches to a plot of land. And Penfolds is now going to be produced in California and in France. And so, you'll get that brand extension across other regions. And so, in a couple of years, Treasury Wines will be able to turn around and sell Penfolds into China again, making the advantage of that really strong brand by using Californian grapes and French grapes. And so, we think this notion that you just zero out that revenue from China is a bit short sighted and therefore the company has room to surprise on the upside. But it's not a near term or immediate thing. This is going to take a couple of years to play out.</p> <p><strong>Hall: </strong>OK. Kate, ESG is a big part of your investment strategy and you've said recently that if we're to decarbonise, we'll need a lot of metals. Which companies therefore do you think are primed to sort of lead that and benefit from that?</p> <p><strong>Howitt: </strong>Well, the most obvious one is BHP. It's one of the largest metals producers in the world. It has a portfolio that still has a little bit of petroleum in it, and the company, I think, will look to realize value from that at the appropriate time in the market. But it's also got exposure very heavily to copper and nickel. Nickel, especially&mdash;on BHP's analysis, we will probably need&mdash;the world globally will need about three to four times as much nickel over the next three decades as we've required over the past three decades. So, that's a really attractive demand setup for that commodity through time. So, we're not calling for cycles to go away in the commodity space. There will still be cycles. There will still be individual commodity price fluctuations for the individual metals. And so, a company like BHP, particularly for the longer haul, allows you to kind of be exposed to that thematic without having to kind of pick individual commodity cycles. Right now, similar to Telstra, the company is also in a very attractive cash flow part of the cycle, because its CapEx has been quite restrained and yet with increased demand, you should get strong demand and therefore underlying price performance of the commodities. But the majority of that cash flow will be able to come to shareholders rather than being sucked into massive multibillion-dollar developments.</p> <p><strong>Hall: </strong>OK. And we'll look at&mdash;in a next video we might look at how to play that nickel option that you suggested. Final question, Kate, without notice. Where do you stand on cryptocurrency?</p> <p><strong>Howitt: </strong>Well, I think the big question on that is, is it digital gold or digital tulip? And perhaps what tips a little bit against it is the huge energy consumption. So, at a period of time where the world has this desperate need to decarbonize and a lot of decarbonization of the transport sector and the manufacturing sectors is going to require increased electrification. So, we have this enormous task to switch our existing grids to renewable sources. Then we have to massively expand those grids to cover transport and industry. And now, we layer on top a financial service derivative that uses&mdash;I think I saw that it's about the same size as the electricity usage of the Netherlands. So, that's a pretty big increment. And I really question the necessity of that in today's environment.</p> <p><strong>Hall: </strong>OK. Kate Howitt from Fidelity, thank you very much for your insights.</p> <p><strong>Howitt: </strong>Thanks.</p> <p>&nbsp;</p> <p><strong>Hall: </strong>I'm Lex Hall for Morningstar. Thanks for watching.</p>

Video Archive...

Lazard's 3 top picks for the energy transition
29/11/2021  These companies are set to profit from the move to clean energy, says Lazard.
An uneven energy transition leaves room for coal and gas: COP26 debrief
24/11/2021  The results of the COP26 climate summit suggest coal demand is likely to persist for longer than expected.
What rising inflation means for Australian investors
17/11/2021  And how investors can protect their portfolios.
6 inflation-tough stocks for global investors
08/11/2021  Morningstar thinks these moaty companies will remain resilient in the face of inflation and ongoing supply chain challenges.
Risk/reward equation still looks good at Westpac
05/11/2021  Morningstar maintains fair value despite a fall in margins and slower progress on cost reductions.
These aren't the Bitcoin ETFs you're looking for
19/10/2021  These new US-listed exchange-traded funds will invest in bitcoin futures, not bitcoin itself.
ESG funds don't underperform - but nor do they outperform
15/10/2021  The ESG outperformance narrative is flawed, new research shows.
Building investment portfolios in a low interest rate environment
06/10/2021  Investors may need to hold more growth assets over the coming years, says Morningstar's Jody Fitzgerald.
Covid impacts still being felt in real estate and tech: Reporting season roundup
01/10/2021  And how G8 Education and Link Administration are positioned for long-term success.
Look to Credit Corp for a leading indicator of economic health: Reporting season roundup
30/09/2021  What Reporting Season August 2021 told investors about the health of the financials sector.
Cause for optimism at a2 Milk and Invocare: Reporting season roundup
28/09/2021  a2 milk is an opportunity to be greedy when others are fearful.
Post-covid normalisation is underway in healthcare: Reporting season roundup
23/09/2021  Covid's winners and losers are returning to their prior trajectories. 
One of the most underappreciated dangers of investing
21/09/2021  Sequence-of-returns risk matters for both retirees and savers. Here's why. 
REITs recover pandemic losses: Reporting season roundup
20/09/2021  Analysts expect the sector to recover to pre-Covid trading levels once borders reopen.
Australian banks face margin pressure amid low rates: Reporting season roundup
15/09/2021  Rising customer deposits and access to cheap funding helped Australia's banks stave off net interest margin pressure, but analysts see warning signs.
Greenwashing explained
14/09/2021  Morningstar's Hortense Bioy on how to spot greenwashing and how to avoid it.
Earnings down as private money circles infrastructure: Reporting season roundup
13/09/2021  Utilities and infrastructure names battle the impact of covid as private equity and pension funds circle. 
Frenzy of mergers in energy: Reporting season roundup
10/09/2021  Hydrocarbons poised for a comeback.
TPG tipped to recover as mobile competition eases: Reporting season roundup
09/09/2021  Providers have lifted prices after years of a debilitating chase for subscribers at all costs , says Morningstar's Brian Han.
Short-sellers bet against ARK Innovation ETF
08/09/2021  What shorting ETFs means for long-term investors.
Surging lumber prices were no match for Brambles: Reporting season roundup
07/09/2021  Morningstar senior analyst Grant Slade says Brambles secular growth trend is intact despite nearterm headwinds. He discusses results from the building and construction materials sector.
Miners soar thanks to iron ore: Reporting season roundup
03/09/2021  Miners bask in the glow of iron ore prices while bargains remain in coal.
BHP-Woodside merger is mutually beneficial
23/08/2021  Post-merger Woodside would be well positioned to deliver on the value we've seen for a long time, say Morningstar analysts.
Investors are getting serious about sustainability
16/08/2021  But the sector lacks uniformity, says Morningstar's Christopher Franz. 
Long term outlook for AGL is positive
11/08/2021  Higher wholesale electricity prices bode well for AGL, according to Morningstar senior equities analyst Adrian Atkins.
How you can hedge your portfolio against inflation
11/08/2021  Morningstar FundInvestor editor Russ Kinnel describes some direct and indirect hedges for inflation protection.
The iron ore party can't last: Morningstar
10/08/2021  Copper and iron ore have benefited materially from China’s stimulus and the developed world recovery. But Morningstar analyst Mat Hodge see these benefit as transitory.
What the Afterpay acquisition means for investors: Morningstar Minute
05/08/2021  We believe the transaction has a high chance of succeeding.
Cannabis' federal legal status is not a total buzzkill
03/08/2021  The industry still has significant growth potential.
Stock of the week: Toyota
03/08/2021  Is one of the biggest sponsors of the Olympics positioned for an all-electric future?
2 listed microcap names to consider
23/07/2021  Morningstar's Lex Hall talks micro-cap stock picks with Carlos Gil, chief investment officer at Microequities Asset Management.
Big returns, big risks: Making money with microcaps
22/07/2021  Mornngstar's Lex Hall catches up with Carlos Gil, chief investment officer at Microequities Asset Management.
3 small-caps with Dawn Kanelleas
21/07/2021  The head of Australian small and mid-cap stocks at First Sentier Investors has her eye on ARB, Breville and IDP Education.
Forecast 2021–2022: A correction could be around the corner
20/07/2021  The strong performances of global stock markets in 2020–21 are unlikely to be repeated in the coming year says Morningstar's Peter Warnes.
'Overvalued' warnings grow as ASX 200 hits new high
12/07/2021  Morningstar equity analysts warn that equities remain overvalued despite Australia's strong economic recovery.
What to know about private equity
08/07/2021  Private equity is an exciting area for investors, with lots of hotly-tipped stocks. But there are risks to be aware of, says Pitchbook analyst Dylan Cox.
Lazard's 3 top picks for the global covid recovery
08/07/2021  Warryn Robertson is looking at French infrastructure, retail pharmacy and tax services.
Aussie banks $34bn surplus points to more shareholder dividends, buybacks
06/07/2021  Australia's largest banks have excess capital because they cut dividends, were more conservative on lending, divested assets and raised equity last year. Morningstar's Nathan Zaia thinks most of it should be returned to shareholders.
Weighing up the PEXA IPO
02/07/2021  PEXA burst onto the ASX this week in the biggest float since 2019. Morningstar's Gareth James gives his take on the company's future growth prospects.
Can the iron ore price keep rising?
30/06/2021  Iron ore prices have  been on a tear, boosting the profits of Australia's top miners.  How did we get here and is the only way up? Lex Hall sits down with Morningstar's Mat Hodge.
2 new stocks to watch
28/06/2021  Morningstar has recently initiated coverage of a food delivery app and a consumer finance product. 
'Strongest earnings season I've ever seen'
24/06/2021  Meeting the deluge of demand is the biggest task for US companies, says Bell Asset Management's Ned Bell.
Biotech beyond covid
22/06/2021  Are there still opportunities in the biotech sector now the covid-19 vaccine roll out is underway? We ask International Biotechnology Trust manager Ailsa Craig
Alibaba is still deeply undervalued
21/06/2021  Morningstar's director of Asia equity research is confident the e-commerce giant will bounce back.
Weighing up the Endeavour IPO
18/06/2021  A wide moat and attractive dividend potential are among the key takeaways of Woolworth's decision to demerge from the liquor and hospitality group.
'Then we got hit with the equivalent of a war'
15/06/2021  Lazard Asset Management's Warryn Robertson explains how companies in the Global Equity Franchise fund have adjusted to covid, and assesses the threat of rising inflation.
Understanding Magellan's active ETF strategy
11/06/2021  Magellan's Craig Wright tells Emma Rapaport why it is leading the charge in the active ETF arena and how its global equity product works.
3 off-the-radar small caps
10/06/2021  Callum Burns of ICE Investors explains his conviction in pharmaceutical distributor Ebos, PSC Insurance Group, and elite sports analytics provider Catapult.
Small cap gems and how to find them
09/06/2021  Callum Burns explains how ICE Investors identifies companies with original products and sticky customer bases.
Stock of the Week:
08/06/2021  They’re building an empire.
3 oil stocks we still like
07/06/2021  A year ago the oil price went negative. How have oil giants handled the past 12 months and what's the outlook from here? Morningstar analyst Allen Good explains.
Considering crypto? Here's what to think about
04/06/2021  As the investment world goes crazy for crypto, Morningstar Investment Management's Dan Kemp explains what to consider before putting it in your portfolio
Why we like Wizz Air
03/06/2021  The airline sector is set to recover as international travel resumes. Morningstar analysts think Wizz Air offer the best opportunity among low-cost carriers.
3 global infrastructure picks
28/05/2021  4D Infrastructure's Sarah Shaw outlines the investment case for Spanish multinationals Cellnex, and Iberdrola, and the potential of Mexican airports.
Are crypto ETFs coming?
28/05/2021  The SEC continues to sort out its regulatory concerns.
Stock of the Week: Apple
27/05/2021  We’re raising our fair value as sales hit new highs—but investors need to put it in perspective, says Andrew Willis.
Opportunities in global infrastructure
25/05/2021  Covid-19 has enhanced rather than impeded the future for global infrastructure, says Sarah Shaw of 4D Infrastructure.
Tribeca's eye for Domain
24/05/2021  Tribeca's Jun Bei Liu also explains why she sees opportunity in sleep apnea specialist ResMed as well as Treasury Wine Estates.
Stocks for emerging markets
19/05/2021  American Century Investment's Patricia Ribeiro sees growth in Chinese battery technology, biologics, and building materials in Latin America.
2 stocks for the rise of the robots
18/05/2021  Robotics is a fast-growing area of tech, creating opportunities in medical, logistics and life sciences sectors and much more.
Square: Stock of the week
18/05/2021  Square's Bitcoin purchase is more marketing than operations
Tesla: Stock of the week
10/05/2021  If Elon Musk ends up delivering, we might need to raise our fair value to US$1500 a share.
Why Tribeca's so upbeat on stocks
07/05/2021  Banks and resources are poised to deliver dividends, and Treasury Wine Estates and BNPL are worth a look, says Jun Bei Liu of Tribeca's Alpha Plus long/short fund.
Looking for value in emerging markets
05/05/2021  Digital banking, ecommerce and 5G are among the key trends set for rapid growth, says Patricia Ribeiro of American Century Investments.
Cash slashed, Aussie equities up: Why Morningstar updates Model ETF portfolios
04/05/2021  Analysts have made changes to the fixed interest, property, cash and equity allocations of Morningstar's Model ETF Portfolios to take advantage of the current market environment. They've also refreshed some of the funds in the portfolio.
Investing basics: Explaining the disconnect between the stock market and the economy
30/04/2021  The stock market and the economy are not the same. Here's why.
Why deforestation matters for investors
23/04/2021  EARTH DAY 2021: Why should investors care about deforestation and how can it can be taken into account within an investment portfolio? 
The silent killer: How to prepare your portfolio for inflation
21/04/2021  Do investors need to worry about inflation, and how do you prep your portfolio to protect you from it? Morningstar Investment Management's Dan Kemp explains.
ESG investing is about more than feeling good: Morningstar equity research
20/04/2021  Values-based investing is ultimately up to the investor.
2 US wide-moat stocks to buy on a dip
16/04/2021 and ServiceNow are looking increasingly attractive.
Fidelity's Kate Howitt names her 3 top stocks for 2021
15/04/2021  Investment tips from Australian equities fund manager Kate Howitt.
Back to basics: What is income investing?
14/04/2021  What is income investing, why is it important and which investors should focus on it? Morningstar Investment Management's Dan Kemp has the answers.
Hunting for pockets of value in an overheated market: Morningstar
13/04/2021  Morningstar equity strategist Gareth James discusses the great value rotation, why he believes the Australian share market is overvalued and where opportunities still lie for hungry investors.
Vaccine rollout drives energy's rise
12/04/2021  But the sector's current tailwinds are likely unsustainable, so investors should prioritise high-quality businesses with stable balance sheets, says Morningstar's Dave Meats.
Finding value with Kate Howitt
08/04/2021  Kate Howitt oversees Fidelity’s Australian Opportunities fund. She discusses her investing approach, the outlook and where she sees value.
Investing for millennials
07/04/2021  Goldman Sachs's Laura Destribats talks about the millennial investment trend, and why tech and experiences are so important to this generation.
What if I want to buy Bitcoin?
06/04/2021  Remember that the returns on speculative assets like Bitcoin are high risk
EGG, SGF, ZBRA: Foraging for the unloved gems
01/04/2021  Steve Johnson explains why Forager Funds Management has bought and held Enero, SG Fleet and Zebra Technologies and why they're poised for further growth.
Why the 'covid spending economy' will flourish
30/03/2021  Forager's Steve Johnson explains why he's bullish on consumer spending, enterprise software companies, and why he has cashed in on big names like Uber.
Proteomics set for growth, says Kardinia
29/03/2021  Kristiaan Rehder explains why the West Australian biotech is among the top performers in the Bennelong Kardinia Capital Absolute Return Fund.
Should you be worried about inflation?
26/03/2021  And how to make inflation "personal."
Crypto what?
25/03/2021  The how, what, and why of cryptocurrency.
The long and short of an absolute return fund
24/03/2021  An absolute return fund aims to seek returns in all weather. Kristiaan Rehder from Bennelong Kardinia Capital explains how.
3 dividend-paying real estate stocks for your watchlist
23/03/2021  Diversified portfolios, strong balance sheets and healthy payouts. Grant Berry singles out three big contributors to the SG Hiscock Property Income Fund.
AREITs in the time of covid
22/03/2021  SG Hiscock's Grant Berry explains how real estate was affected by the pandemic, how property stocks coped, and the chase for income in an evolving retail landscape.
Have we reached peak video gaming?
19/03/2021  Video gaming has soared under lockdown, can this sector keep growing post-covid? Morningstar analyst Neil Macker takes a look.
Myer: five stars and poised for the rebound
18/03/2021  The retail giant's strong balance sheet will help it navigate the shift to online shopping and capitalise on the return to normal life, says Morningstar's Johannes Faul.
Deliveroo IPO: what you need to know
10/03/2021  Ahead of Deliveroo's IPO, Morningstar analyst Ioannis Pontikis looks at the outlook for the business, its valuation and concerns about gig workers.
2 stocks for the e-learning boom
08/03/2021  E-learning has become the norm for young students and university-goers across the world. Morningstar analyst Michael Field looks at whether the trend is here to stay. 
February Reporting Season Wrap Up with Peter Warnes: Webinar
04/03/2021  Special guest Peter Warnes, our head of equities research, joins the Morningstar Foundations of Investing Webinar series to give his unique take on February Reporting Season and answer subscriber questions.
One year after the market crash, through the ETF lens
03/03/2021  The growth and adoption of exchange-traded funds has only accelerated as a result of the latest market crisis.
Brighter picture for big four banks
01/03/2021  Morningstar's Nathan Zaia on the outlook for the banks, dividend payouts and the move by the Bank of Queensland to acquire ME Bank.
One year on: lessons learned from the 2020 bear market
25/02/2021  The biggest takeaway from that period is not to panic when the market tumbles.
What if...I want to buy a gold ETF?
23/02/2021  From ETFs backed by bullion to miners with more upside potential - here's how to get yourself some gold.
'Full return to normal in 2021'
23/02/2021  If the US is to stage a recovery by mid-year, it will need the consumer services sector to fire, says Morningstar's head of economic research Preston Caldwell.
Google, Facebook versus Aussie news stocks
19/02/2021  Morningstar's Brian Han weighs up News Corp's deal with Google and examines the effect of Facebook's decision to block content from Australian media outlets.
Global real estate as a store of value
18/02/2021  Quay Global Investors' Chris Bedingfield explains how self-storage, data centres and industrial property can offer diversification and growth.
Spotting the 'covid winners'
16/02/2021  Uniti Group and Nextdc are among the companies that SG Hiscock's Hamish Tadgell says have flourished during the pandemic.
The transition from hope to growth
15/02/2021  Hamish Tadgell of SG Hiscock explains the portfolio changes he’s made in a bid to capitalise on the shift.
The future of the US economy
10/02/2021  Which pandemic-related trends have already passed, and which ones might be around the corner?