Over the past year, the global market has been difficult to read. But, “some of the worst fears of the last few years regarding materials and energy, and the commodity complex, are likely behind us,” says Chris Ibach, a global portfolio manager for Principal Global Advisors in Des Moines, Iowa.
So even though there’s been significant slowing of growth around the globe–particularly in the emerging economies–he’s finding more opportunities.
Ibach, whose firm manages the Renaissance Global Equity Private Pool, also notes the strong U.S. dollar has moderated and weakened a bit on the back of some slowing growth in the U.S., coming off of early 2016 highs.
And, on a global scale, “there are potentially some better inflation numbers from the emerging markets area,” he says.
Looking at energy, Ibach finds the sector is more attractive and he’s added to his energy positions over the past few months. He’s focused on higher-quality earnings and areas where earning surprise is likely to occur; names he favours include Helmerich & Payne and EOG Resources.
He’s has also increased positions in Canadian gold companies like Kinross Gold Corporation, Yamana Gold and Barrick Gold. “These are names that we haven’t held for a long period of time, but with slowing growth, deflationary worries and a weaker [U.S.] dollar, these companies tend to be quite strong.”
One reason is, over the last three years, they’ve worked on their balance sheets to become as profitable as possible, Ibach notes. “That’s where the upside surprise comes in. They’re probably going to reap the rewards of the restructuring they’ve done. These companies have done very well, up maybe 100% or so since [our] purchase earlier this year.”
Outside the energy and materials space, he sees promise in longer-term healthcare picks, such as Gilead Sciences and Amgen.
Gilead is trading at 7x earnings, says Ibach. “[Plus], it has the ability to generate cash better than almost any company I’ve seen. There are fears of drug pricing that are causing the stock to underperform in the more recent period. But we continue to like the company’s fundamental cash generative ability in this low interest rate environment.”
Also, healthcare and biotech are areas that help diversify portfolios, he adds. “These companies are creating cures and treatments for very serious diseases, and [will] continue to grow,” regardless of how the global economy is faring.