Gert van der Geer of Pictet Asset Management focuses on 12 long-term global trends
It’s hard to focus on long-term growth trends in the midst of a pandemic that produces nothing but uncertainty, but investors need to do exactly that.
Electronic payment processing is one area in which short-term trends — staying at home and doing more shopping online than usual — are accelerating a long-term shift that has shown no signs of slowing.
Gert van der Geer of Geneva-based Pictet Asset Management discussed in an interview five important players in the digital-payment space that he believes are good values for long-term investors.
Pictet Asset Management has a team that focuses on “thematic equity strategies” to follow long-term global trends that are expected to continue regardless of the economic cycle. The firm had $589 billion in assets under management as of June 30. Pictet’s Thematic Equities team runs mutual funds that follow each of 12 equity themes that are listed here.
Van der Geer co-manages the John Hancock Global Thematic Opportunities Fund
which holds 50 to 55 stocks that represent “the best ideas” from the funds that are managed according to the 12 themes. The fund currently has all 12 themes represented in its portfolio.
When asked about his strategy in light of the current environment of very low interest rates and a vast increase in the money supply and rising stock prices, he said: “We don’t invest only for growth. We want companies that are able to capture an increasing part of that expanding pie.”
He said he and the team were looking for stocks whose compounding potential was undervalued by the market.
Narrowing down to the digital theme, van der Geer discussed five companies that are held by the John Hancock Global Thematic Opportunities Fund that he believes will provide market-beating returns as the world continues to shift away from cash to various types of digital payments. All five have recovered, and then some, from the market doldrums of March:
• Fidelity National Information Services Inc.
offers payment-processing services to merchants, core processing, internet banking and other services to banks and also various securities processing and related services through its Capital Markets Solutions segment. “There is a relatively small group processing electronic payments,” van der Geer said. The stocks were hit hard with the decline in volume as restaurants closed and foot traffic in stores was curtailed. On the other hand, the changes in consumer behavior brought about by the COVID-19 pandemic are accelerating “the speed at which cash is phased-out,” he said. So his thesis for the stock and the payment space is a very long one. The company is scheduled to announce its second-quarter results Aug. 4. The John Hancock Global Thematic Opportunities Fund also holds FIS’s former parent, Fidelity National Financial
which is the leading issuer of title insurance policies in the U.S.
is a French payment processor that is “rolling up Europe,” according to van der Geer, as it makes acquisitions to take advantage of the increase in cross-border transactions. The company also does business in Latin America and Asia.
• The John Hancock Global Thematic Opportunities Fund holds Visa Inc.
which van der Geer said was “a little cheaper” than Mastercard Inc.
with “similar exposure.” He said price-to-earnings multiples are high for Visa and Mastercard, but that the U.S. credit-card processing giants are “in an enviable position.” For its fiscal third quarter ended June 30, Visa reported a 17% decline in net revenue from a year earlier, as payment volume declined 10%, and a 22% decline in earnings per share to $1.07.
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• Shares of PayPal Holdings Inc.
have shot up 77% this year. The e-commerce trend has been an obvious boon, as second-quarter net revenue was up 22% from a year earlier and earnings per share were up 86% to $1.29. Emily Bary interviewed PayPal CEO Dan Schulman on July 29. The company is “a great example of a stock in prime position to benefit from strong secular trends as it benefits from a continued switch from offline to online retail,” van der Geer said. He said the shares “are not cheap, optically,” but said he expected the stock to keep trading at premium valuations: “How many companies of this size are growing revenue an expected 20% in this corona year and EPS 25%?”
• Alibaba Group Holding Ltd.
isn’t only an e-commerce giant. It holds Ant Group, which runs Alipay, one of the largest payment processors in the world. Ant Group is expected to have its own initial public offering soon. Alibaba hasn’t yet said whether there will be a full spin-off of Ant Group or where the new shares will be listed. But van der Geer is enthusiastic about Alibaba and the IPO, as there will be “a valuation on an asset hidden within Alibaba.”
Here are the top 10 holdings of the John Hancock Global Thematic Opportunities Fund as of June 30:
|Company||Ticker||Share of portfolio||Total return – 2020|
|Roche Holding AG||
|UnitedHealth Group Inc.||
|Thermo Fisher Scientific Inc.||
|Fidelity National Financial Inc.||
|Fidelity National Information Services Inc.||
|Cisco Systems Inc.||
|Schneider Electric SE||
|Alibaba Group Holding Ltd. ADR||
|Daikin Industries Ltd.||
|Sources: John Hancock Investment Management, FactSet|
The John Hancock Global Thematic Opportunities Fund was established Dec. 14, 2018. That’s a short period for a fund with long-term objectives. But here is how the fund’s Class I shares have performed, after expenses, against its benchmark, the MSCI All Countries World Index, since that date: