When it comes to expert ASX investors that we mere mortals look up to, it doesn't get too much more illustrious than Kerr Neilson, founder of Platinum Asset Management Ltd (ASX: PTM). That is especially true after the recent drama revolving around Magellan Financial Group Ltd's (ASX: MFG) Hamish Douglass.
Mr Neilson founded Platinum back in the 1990s, and since then has gone on to become one of the ASX's most respected and followed investors. That's despite Neilson leaving his full-time role at Platinum a few years ago.
So when this investor makes a prediction, it might just pay to listen.
TINA is over: Kerr Neilson
According to a report in the Australian Financial Review (AFR) this week, Neilson has called the end of the 'TINA era' (not to be mistaken with Tina Arena). TINA is an acronym that stands for 'There Is No Alternative'. It describes the near-zero interest rate investing environment over the past few years.
With rates at near-zero across most of the world, storing cash in bank accounts, term deposits or in fixed-interest investments has become extremely unattractive due to the almost non-existent real returns investors could expect. This was deliberate to some extent – central banks around the world wanted investors to pay a high price for safety, in order to encourage more investment and spending in the face of the COVID-19 pandemic.
But it also had the side-effect of forcing a load of cash into growth assets like shares and property. Many investors might have preferred to keep their cash safe in the bank, but the prospect of receiving no rewards for this forced many to turn to investing in shares or houses.
Back to basics with value investing…
But Neilson reckons this TINA era is over. Here's some of why he is arguing that interest rate rises will change the game:
As soon as you get a repricing of money, a whole lot of shifts take place in the relative value of things… Many of these tech companies are still well over ten times sales, and they've got to compound for 20 to 30 per cent a year for a long time to get an earnings yield that is anything like a bond…
When you're a novice, you regard price as a signal of your judgements… When you're a pro, you start with a clear view of what something's worth and then you look at the price in relation to that.
In keeping with Platinum's roots, Neilson reckons that investors should look to value investing through a company's fundamentals going forward. He says that free cash flow yields will return as "a dominant driver of investment returns".
Nielson says he's looking at the Chinese market in particular:
Chinese industrials in the healthcare, insurance, consumer staples and services space should perform well thanks to cheap valuations, the country's vast middle class, and the widening trade rift with the US.
So that's Mr Nielson's perspective on the current market. No doubt Platinum Asset Management shareholders will hope Neilson's expertise can translate over to his old company.
