Going against the tide
Frank Schwarz from MainFirst remains confident about American champions such as Tesla and Nvidia. He also is overweighed in the Asian region and China in particular.
Mainfirst invests in large-cap companies that will be the leaders of tomorrow in their respective sectors and will deliver growth of more than 20% per annum. This includes American names such as Nvidia, Amazon and Tesla. Commenting about the latter, Frank Schwarz, Portfolio Manager at Mainfirst says : “The press welcomed the launch of the Model S in 2020. For the first time, an electric car manufacturer made it into the top 10 of the automotive industry. Despite his controversial personality, Elon Musk has proven his ability to run a successful business. He has been able to manage production rates and integrate the production supply chain. In a way, I compare him to Steve Jobs. Many of our customers have asked us to get rid of this exposure, but I'm keeping it because I'm convinced of its potential.”
Elon Musk’s management style is to push people hard, especially with a strict production schedule for the $25,000 model. “His goals may seem impossible at first, but he always manages to achieve them, even if they are a year or two late,” says Frank Schwarz. “He believes the only way to progress is to set the bar high. The media, however, are more focused on Twitter's development. But Tesla remains very popular in China and elsewhere in Asia.”
Frank Schwarz is not convinced of autonomous driving. He prefers projects in energy storage or AI, which will require more microprocessors: “Elon Musk is also interested in AI. He has just launched his Grok system to compete with ChatGPT.”
American digital champions
Nvidia is another name in Mainfirst’s holdings. “I first met its CEO ten years ago,” says Frank Schwarz. “At the time, the world leader in semiconductors - US-based Intel - was working on a complicated 18-month production line. The sector was not evolving, and production times were long. Nvidia arrived as a disruptor, with graphics chips for consoles and computers. Its technology allowed it to increase the performance of its chips every year. With the advent of AI, the demand will be even greater, and these systems will require high quality chips from Nvidia. Nvidia currently holds 96% of the market, with few competitors.”
American tech giant Amazon, an innovative global leader in technology, software and engineering “has great potential for the future”, according to Frank Schwarz: “The company counts Microsoft and Google among its competitors and has the lion's share of the cloud market, with a 45% share. Amazon offers a wide range of web services and is currently building a new IT platform.”
Besides Apple, which looks very expensive to Frank Schwarz, he thinks other American technology companies “are trading at reasonable multiples given the visibility of this year's earnings.”
Chinese equities trade at significant valuation discount to the US market
Chinese companies are underrepresented in global indices. Yet China is home to technology companies, very large market caps and some of the world's highest earners. “We have overweighted the Asian region to better reflect power relationships,” says Frank Schwarz. “China remains the leader in 37 out of 44 emerging technologies. Many Chinese companies are leaders in their segment, particularly in intelligent materials and radio frequency communications, or defence activities in cybersecurity.”
The Chinese equity market currently trades at a significant valuation discount to the US market. “We believe this is unjustified,” comments Frank Schwarz. “Our portfolio companies continue to show stable growth rates. One of the examples is CATL (Contemporary Amperex Technology Co. Limited), a leading Chinese company specialising in the development and manufacture of lithium-ion batteries for electric vehicles and energy storage systems. Another holding is Meituan, a Chinese technology company that provides a very popular application for various services, including food delivery (between 50 and 70 million meals per day), restaurant reservations and travel. And finally, we also own Pinduoduo, a fast-growing Chinese e-commerce platform that stands out for its social shopping concept, where users buy products together to get discounts.”
