Navigating Shifting Markets: A Deep Dive into Global Equity Benchmarks and Value Investing
The global equity landscape is undergoing a significant transformation. After two decades dominated by US exceptionalism and the relentless rise of tech giants, passive investors now find themselves holding portfolios heavily concentrated in a select few mega-cap names. This seismic shift has not gone unnoticed by astute investors, and Jacob Mitchell, Chief Investment Officer at Antipodes Partners, believes many are yet to fully grasp the implications.
“Allocators have shifted a lot of capital into passive strategies and into core strategies,” Mitchell explains. “So across portfolios, there’s quite a lot of benchmark risk. And as concentration has built up in the benchmark, so has that value at risk.”
Mitchell, who manages the Antipodes Global Value Fund, offers a distinct perspective. This valuations-focused core global equities strategy, accessible on the ASX via the Antipodes Global Value Active ETF (ASX: AGX1), is intentionally designed to diverge from the index. It deliberately underweights North America and mega-cap tech, while favouring Europe and emerging markets, where the firm identifies more attractive valuations.
In a recent discussion, Mitchell unpacked the benchmark risks investors must be aware of, explored mispricing opportunities in both US and European equities, and highlighted the crucial role of value allocation as a portfolio diversifier.
Jacob Mitchell, CIO of Antipodes Partners, discusses global equity markets.
Identifying Mispricing Opportunities: Where Value Lies
At a macroeconomic level, Mitchell observes a persistent divergence: US equities continue to trade above their long-run trend valuations, while Europe and emerging markets remain below. This dynamic extends to the factor level, with growth and quality stocks appearing expensive when contrasted with value.
While these are broad observations, Mitchell emphasises that the Antipodes value approach is fundamentally bottom-up. “We’re looking for those opportunities that are cheap relative to their growth and their business resilience.”
This combination of price, growth potential, and durability defines what Mitchell terms “pragmatic value.” It’s about identifying stocks that are undervalued relative to their growth prospects, irrespective of whether that growth is low or high. This approach distinguishes it from traditional “deep value” strategies, which often carry significant cyclicality and are highly susceptible to economic fluctuations.
Capitalising on Structural Trends: A Case Study in Aged Care
A compelling example illustrating Mitchell’s investment philosophy is Brookdale Senior Living (NYSE: BKD), a US-based operator in the aged care sector. The investment thesis began with a thorough examination of the US aged care industry, particularly the powerful demographic tailwinds. As Mitchell notes, “We’ve all probably heard of the grey tsunami, and there’s nothing more predictable than demographics in ageing, unfortunately.”
With the oldest baby boomers now approaching 80, Mitchell forecasts that the demand for aged care from this cohort will more than double before the decade concludes. However, supply has lagged significantly. Rents across the sector have consistently fallen below replacement cost, stifling new development.
“Limited supply, demand growing very rapidly. That’s what you like in a real estate exposure,” Mitchell states.
Beyond the favourable market dynamics, Brookdale also required a management turnaround, which Mitchell confirms is now well underway. “It’s very easy to sell a bed when there’s so much demand,” he commented. “It’s about running it efficiently.”
Antipodes invested in Brookdale when it was trading at a substantial discount, less than 10 times EV/EBITDA, a stark contrast to the sector leader’s valuation of close to 30 times. Furthermore, Mitchell highlights Brookdale as a rare “AI-agnostic” structural trend opportunity. This is particularly appealing in a volatile market still grappling with identifying definitive AI winners and losers, thus avoiding potential AI-related risks.
A New Horizon: European Multinationals and Infrastructure
The Antipodes portfolio exhibits a pronounced tilt towards Europe, with a particular focus on high-quality European multinationals. Evidence of European fiscal stimulus is emerging through infrastructure projects, increased defence spending, and significant investment in the energy transition. Antipodes has actively sought to participate in this trend, prioritising AI-agnostic options.
A recent addition to the portfolio exemplifies this strategy: Alstom (EPA: ALO), the French rail company. Following a history as a diversified conglomerate, Alstom has streamlined its operations to focus solely on rolling stock, signalling, and rail services.
Mitchell finds Alstom’s current structure particularly attractive for several reasons. The Western rail industry has consolidated into a few dominant players, with limited competitive overlap between Chinese and Western suppliers. Alstom currently trades at approximately 13 times earnings, for a business Mitchell believes possesses the capacity for more consistent growth than its historical performance might suggest. “We like to buy these sorts of businesses after they’ve gone through a downturn that’s led to consolidation at the beginning of a demand upturn,” he asserts.
Managing Risk in a Contrarian Portfolio
Operating a portfolio that deviates significantly from the benchmark inherently presents its own set of risks, a lesson Mitchell notes many value-based managers have learned through experience.
“You can have a value tilt in your portfolio…it’s always a question of what baggage is coming with that tilt. And sometimes, especially deep value managers, will bring a lot of cyclicality along with that. And so their portfolios tend to be quite episodic and they’re very sensitive to the economic backdrop.”
Mitchell contends that pragmatic value offers more flexibility to mitigate these risks. “We really just step back and we think about all the bottom-up selection decisions and then we think about how the tilts we’ve built in and whether or not we’ve been compensated for any of the bigger tilts.”
The discipline lies in adjusting the portfolio if a particular regional or sector tilt is not adequately rewarded. This systematic approach, Mitchell credits, has led to improved consistency in returns relative to the risk taken.
Strategic Fund Allocation: Value as a Diversifier
Traditionally, investors have segmented their portfolios using “style buckets” such as growth or value. However, Mitchell suggests a more pertinent lens in today’s market is diversification, given the overwhelming dominance and distortion of quality and growth within the index.
“Value is very much underrepresented in the benchmark,” he states. “The role that a value allocation plays is really it’s a diversifier for your passive allocation or for your core allocation.”
When assessing the effectiveness of this investment thesis, Mitchell points to consistency as the key metric. “It’s returns relative to risk. If you were to see our returns sort of roll off at the same time that the volatility was going up, I think that would certainly be a warning sign.”
