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...

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?
GameStop frenzy is history repeating
05/02/2021  The battle between the Reddit army and hedge funds is nothing new—the question is will regulators be willing to step in, says Morningstar's John Rekenthaler.
Who are the fast fashion winners?
03/02/2021  Competition is fierce for fast fashion retailers such as Asos, H&M, Zalando and Inditex. Morningstar analyst Jelena Sokolova takes a look at the sector.
Can your portfolio withstand volatile times?
01/02/2021  Volatility can be around any corner, says Morningstar director of personal finance Christine Benz.
How much equity exposure is too much in retirement?
28/01/2021  Retirees require stocks' growth potential, but they need a cash and bond buffer, too.
Key trends for China investors
27/01/2021  Rebecca Jiang, manager of the JPMorgan China Growth & Income Trust, looks at why Chinese stocks soared in 2020 and whether the trend can continue.
Redpoint's 3 top picks in industrials
25/01/2021  Redpoint's chief executive and portfolio manager Max Cappetta tells Lex Hall why he's got his eye on JB Hi-Fi, Goodman and Reliance Worldwide in 2021.
Looking for growth and income among industrials
21/01/2021  Redpoint CEO and portfolio manager Max Cappetta looks at the dividend potential of large-cap names, the resilience of Qantas, and the local tech landscape.
What we expect from oil prices
19/01/2021  Stocks still look cheap across all subsectors, especially oilfield services and refining, says Morningstar analyst Dave Meats.
What’s app-ening: investing from your phone
19/01/2021  What are the rewards and risks of using this technology?
A Democrat clean sweep and corporate America
15/01/2021  Morningstar's head of policy research Aron Szapiro explains what sort of changes a Biden government will make and how they will affect company valuations.
3 stocks for climate transition
14/01/2021  Freight-rail, building temperature efficiency, and carmaking are among the sectors Aviva Investors' Jaime Ramos Martin has his eye on.
The outlook for dividends
13/01/2021   Dividend investors had a hard time in 2020, but Morningstar analyst Dan Lefkovitz think the outlook is brighter for the year ahead.
3 themes for fund investors in 2021
11/01/2021  Morningstar Investment Management's Dan Kemp reveals the three investment themes on his mind for the year ahead.
What next for oil and gas companies?
06/01/2021  Morningstar equity analyst Allen Good looks at the prospects for oil and gas giants in the year ahead. 
China outlook 2021
05/01/2021  China had a strong year after a rocky start, but can it continue—and what does a US President Biden mean for the region? Morningstar analyst Lorraine Tan explains.
Tech, travel and trends for 2021
04/01/2021  Morningstar equity director Alex Morozov considers the outlook for tech, travel and beyond for the year ahead.
Money and investment lessons of 2020
01/01/2021  How to plan for things you can't plan.
Morningstar Year in Review 2020
25/12/2020  2020: we look back at the highs and lows of an unprecedented year in financial markets and explore the themes shaping 2021.
Are music streaming companies a big hit with investors?
22/12/2020  Music streaming companies have seen stellar growth in user numbers. We ask Morningstar equity analyst Neil Macker if the trend can continue.
What Tesla's inclusion in the S&P 500 means for investors
21/12/2020  While it stands as the largest addition in the index's history, this likely won't impact everyday investors all that much. 
Peter Warnes and the 2021 Forecast
18/12/2020  Will there be opportunities to deploy cash in the new year? Will there be a reprieve from covid? And what will the incoming Biden administration mean for markets?
Investing in the climate transition
18/12/2020  Companies that specialise in solar, building efficiency and renewables underpin Aviva Investors' Climate Transition Global Equity Fund, says Jaime Ramos Martin.
Why does liquidity matter?
16/12/2020  Why does liquidity matter to investors, and how can it affect your returns? Morningstar equities director Tom Whitelaw explains.
Introducing the Morningstar Capital Allocation Rating
14/12/2020  Learn what we look for when rating a company.
Incorporating ESG into our equity research process
14/12/2020  Morningstar's new approach unpacks the environmental, social and governance risks that companies face.
Tagliaferro: yield ideas for your portfolio
10/12/2020  Industrial companies typically generate better cash flows and can offer a steady income stream, says the IML founder.
Anton Tagliaferro on value versus growth
09/12/2020  The lofty valuations of Tesla and Afterpay typify the effervescence and speculation in the market, says the IML founder.
Can car companies be ESG investments?
08/12/2020  Car makers may not be an obvious investment choice for ESG-conscious investors, but Morningstar analyst Tancrede Fulop says some of the largest companies score highly in some measures such as safety and human capital.
The US and China under president-elect Biden
07/12/2020  Janus Henderson's Matt Peron considers how the relationship between the US and China will evolve under a President Biden.
Investing basics: what is active and passive investing?
04/12/2020  What is active investing, and what is passive investing? We're at the whiteboard to explain the pros and cons of each 
Why we still like Treasury Wine
04/12/2020  Treasury Wine Estates remains an undervalued stock in spite of China's demand-destroying tariff on Australian wine. Morningstar director of equity research Adam Fleck explains why.
What is gold worth?
03/12/2020  And do any other assets currently compare?
Why now is the time for ESG investing
02/12/2020  We're at an inflection point in ESG investing, says Sustainalytics founder Michael Jantzi. Here's why. 
10 stocks retail investors bought in covid sell-off
01/12/2020  Beaten-down travel stocks and BNPL providers featured heavily, says nabtrade’s Gemma Dale.
How retail investors seized on covid sell-off
30/11/2020  Many people were waiting for the opportunity to buy shares at historic discounts, says nabtrade’s Gemma Dale.
AMP: difficulties now, but dividends later
27/11/2020  The 171-year-old wealth manager has had its scandals but there's merit to its turnaround strategy and the quality of its other assets, says Morningstar's Shaun Ler.
'Be careful using buy now pay later'
27/11/2020  BNPL products such as Zip Co help boost consumer spending but they come with risks and are overvalued, says Morningstar analyst Shaun Ler.
Hamish Douglass: Winners and losers in the covid era
26/11/2020  The Magellan co-founder argues the ecommerce acceleration is here to stay and ponders the effect it will have on other sectors such as travel and commercial real estate.
A 'wonderful hunting ground'
25/11/2020  Greg Dean of Cambridge Global Asset Management explains why the consumer services sector has yielded healthy returns.
Hamish Douglass and big tech
25/11/2020  Magellan's co-founder explains which tech behemoth the Magellan Global Fund no longer owns, why one was too tricky to value, and why regulation is no threat.
Hamish Douglass: 'We're lucky this pandemic hit when it did'
24/11/2020  Magellan's co-founder on why 2020 resembles 2000 and why covid-19 is a dry run for something that could be much worse without proper planning.
Should you beef up your exposure to meat processors?
23/11/2020  Their shares have gotten hammered this year. Are they opportunities or value traps?
What is the Morningstar ESG Commitment level?
20/11/2020  Our new rating highlights the degree to which a fund or asset manager considers environmental, social, and governance issues.
What's driving the flows into ESG funds
19/11/2020  Morningstar's Grant Kennaway explains why sustainable funds are increasingly popular and why they're performing well. 
Too much upside baked into Bunnings: Morningstar
17/11/2020  Morningstar director of equity research Johannes Faul looks at home improvement retailer Bunnings.
What is ESG?
16/11/2020  From climate change to workers' rights, ESG is a big part of the investing world. We're at the Morningstar whiteboard board to explain what it means and why it matters.