Dealing with today’s low-interest-rate environment is tough.
“Correlation between equity prices has been very high over the last 18 months,” says Foster Corwith, a portfolio manager with Causeway Capital Management in Los Angeles. He manages the Renaissance Global Markets Fund.
“If we were to see a drawdown in the market, that would be very good for stock pickers,” he adds. But, “what you’ve seen in the U.S. over the last [couple] months with interest-rate policy is the market is proving very difficult to manage.”
Still, there are several areas of the market that offer opportunities, says Corwith. He currently favours consumer staples, utilities, real estate stocks and high-yield businesses. These perform well in a low-rate environment, he explains, which is why “you’ve seen a lot of money shift from credit markets toward equity markets.”
Further, he says, “In our portfolio today, financials are a great example: businesses [including] Barclay’s in the U.K., KBC in Belgium, Sumitomo Mitsui in Japan […] have really been impacted by the [threat] of negative interest rates.”
While financial companies appear to be struggling, Corwith adds, “there’s a lot more happening below the surface once you dig into their fundamentals; you’re finding businesses that are restructuring, improving their balance sheets and pushing return on equities toward historical highs. But [these businesses] still trade well below book value.”
Corwith’s also focusing on “businesses that are capable of borrowing at reasonable levels and using that capital to invest in creative ways.”
One example is PVH Corp., which is the parent company of brands such as Calvin Klein and Tommy Hilfiger. “[PVH] has been using low-debt costs to roll up competitors [and] consolidate the market in a way that should be very beneficial to shareholders. We see a lot of opportunity.”