How Increased Volatility Is Creating International Opportunities
article , video 05-04-2018

How Increased Volatility Is Creating International Opportunities

David Nadel discusses a Fintech holding from Australia and how his strategy navigated the volatile first quarter.


Which areas did well in the portfolio in 1Q18—and which didn’t?

I think in terms of what outperformed, you know, not dissimilar from the U.S., Information Technology and Health Care were strong areas that did well. We were challenged on the other hand geographically by what is our biggest overweight, which is Switzerland, which was the worst performing major market in the first quarter, so that was a bit of a challenge. But you know, overall we used the quarter as an opportunity to reposition a little bit. There was a fair amount of volatility in that quarter. And so we bought some positions and sold some positions.

Has increased volatility created more opportunities?

So the increased volatility’s definitely created opportunities for us. We have a sort of a bullpen of companies that’s six or seven times the size of our portfolio. And as things become volatile, more and more of those companies become affordable. So during the quarter we added a company in laboratory equipment. We added a company in Fintech. We deleted a business in retail and a business in pharmaceuticals. So there was, you know, opportunity to shift things around a little bit within that first quarter.

Oddly, no one calls it volatility on the way up. They just call it volatility on the way down.

Is volatility good for active managers?

I think volatility is generally good for active managers. You know, again, it doesn’t always feel great when it’s happening, but without volatility it’s really difficult to take advantage of price dislocation and we’re trying to create a portfolio of the 50 best companies we can find. Those companies are not usually inexpensive. So we use volatility as a mechanism to get in at more palatable prices than if the markets were sort of just very steadily going up, and there was, you know, no excitement. Oddly, no one calls it volatility on the way up. They just call it volatility on the way down.

What areas of the market are you excited about?

Well, we’re excited about a number of areas. I would say one thing that leaps out at me at the moment is Fintech. And by Fintech, I don’t mean the glamorous stuff like, you know, Robo-advisors. I’m talking about more the kind of funds administration plumbing, if you will. So everything from software to just pure administration of trusts and, and, and items like that.

One company we have that’s done particularly well and we’re enthusiastic about because it’s still not very expensive, is an Australian funds administration software business. Australia is the fourth largest pension market in the world. It is growing at among the fastest rates of any pension market, in part, because employers match employees with contributions, and so retirees are very wealthy, and there’s a lot of money to manage. But rather than picking a fund, funds management company, and betting that their strategy will work out better than others, because strategies do go in and out of favor, investing in a software business that’s agnostic to multiple players in the funds management area, is I think a safer, more predictable way of having exposure to that theme.

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Average Annual Total Returns as of 3/31/18 (%) 

International Premier 0.32 28.27 15.25 10.97 8.44 12/31/10
Russell Glo x US SC -0.34 19.33 9.82 7.79 5.74 N/A

Annual Operating Expenses: Gross 1.65% Net 1.44% 

1 Not annualized.

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