WHY THESE TECH FUNDS?
Besides tech companies that we are familiar with such as Microsoft, Apple and Adobe, we’ve also made recent investment calls into a Water Technology ETF and a Pinebridge Fund based in the US which is also invested in many tech companies. Let us explain why we like them.
Suddenly, washing hands has become one of the most popular activities, along with supermarket runs, buying up all the toilet paper we can find, and queuing up for bubble tea or haircuts into the late of the night. In no way are we encouraging panic buys – but it just doesn’t feel that water is worthwhile to invest into, especially when potable water in Singapore costs only $2.74 per 1,000 litres1 for domestic use.
However, in just one month, according to Bloomberg, the ETF returned more than 22% since 23 Mar 2020 (as of 22 Apr), compared to about 37% for the whole of last year. The good results this year were partly due to the rebound effect we covered in our last VIPS Quarterly Newsletter, and also due to the many structural growth companies that it is invested into.
COVID-19 has highlighted the need for clean water, for it is pointless washing hands without it. Yet more than 2 billion people globally lack access to it, according to the UN2. It will cost almost $420 billion a year over the next decade to provide access to clean water. There is also another business opportunity due to water quality issues arising from chemical pollution3 as awareness spreads. Another issue to be solved is related to climate change which also means it is increasingly important to ensure that our water sources are reliable4.
However, not all water companies meet our criteria. A recent example, Hyflux, comes to mind. Hyflux was supposed to hold scheme meetings in the past week for different classes of creditors to vote on its debt restructuring plan5. Some investors are hoping that the government would intervene so that they could still recover some money, but the scheme meetings were also postponed to a later date due to the COVID-19 safe distancing rules5.
It is thus crucial to be extremely selective, and we have also touched on using our revised investment methodology in choosing structural growth winners in our earliest write-up this month.
One of the companies featured in the ETF is Danaher. It has more than 40 businesses spanning five segments including water. It is high quality and defensive with 70% of its revenue being recurring ones6. Their team of leaders is also not afraid to try new things in order to become better, and they also have core processes and tenets that have “helped Danaher focus on long-term growth, long-term margin expansion, and maintaining a great cash flow record over many years6.”
Water Technology ETF (for Cash Investments)
This water ETF tracks one of the Water Indices, which consists of more than 30 water companies, most of which are mid- to large-size US equities. The companies represented in the fund create products designed to conserve and purify water for homes, businesses, and industries listed on the US exchange. It is also one of the largest water ETFs on the market with an expense ratio of 0.60%, or $60 for every $10,000 invested7.
There were not many ETFs that outperformed the US S&P500 Index*, but this was one of them which did since the rebound. We also like that as it has low overheads.
What differentiates PineBridge?
PineBridge is majority-owned by a subsidiary of Pacific Century Group (PCG), an Asia-based private investment group, which is owned by Richard Li, the younger son of Sir Li Ka-Shing. It was established in 1993 with interests across three core business pillars – Technology, Media & Telecommunications (TMT), Financial Services and Property, and it has also demonstrated a strong track record of successful investing.
They invest using a Growth Categorization Research (GCR) process which is a time-tested investment process of more than 15 years that allows them to capture investment opportunities across the full market spectrum. According to the fund house: “We believe that the largest alpha opportunity is in the market’s inefficiency in anticipating the change in companies over their lifecycle. Our proprietary process segments the investment universe into six homogenous categories based on their maturity and cyclicality, allowing the strategy to adapt to changing market conditions. We feel this approach gives a more consistent analytical insight into a stock’s attractiveness and valuation and has resulted in superior investment performance over time.”
The fund house thus selects companies based on the Life Cycle Categories of their framework instead of selecting the companies based on the sectors or industries they belong to.
Pinebridge Fund (for CPF OA investments)
This fund consists of more than 100 securities based on the GCR process; and amongst the CPFIS OA category for all US equity funds, it returned the best performance when measured since 23rd March, slightly outperforming the S&P500 index (in SGD terms) and outperforming the more well-known Fidelity and Franklin US funds by 3.2-6% (as of 14th Apr). In fact, Pinebridge was the only US equity fund on the iFAST CPFIS OA category that outperformed the US S&P500 index (in SGD terms) during this period*. Pinebridge also charges the lowest in annual management fee at 1%.
Do speak to your Unicorn consultant if you have further queries.
Note: We will increase the frequency of our communication with you to weekly during the current turbulent times. We will continue to communicate monthly with you during usual times.
*S&P500 index generated a return of 8.2% p.a. with reinvested dividends in the past 20 years and continues to be held up as the standard by which all investment performances are measured9.
1.PUB Singapore, (for households using 0-40cm3 per month)
5.Channel News Asia
6.Strategy + Business
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