Market Minute from BlackRock Fundamental Equities

Non-U.S. markets brimming in investment ‘excitement’

The investment opportunities are constantly changing as economic reopenings roll on. Active equity investor James Bristow is spanning the globe and finding no shortage of investment excitement.

There are many reasons to invest beyond U.S. borders. Some of the most commonly cited:

  1. Home country bias means U.S. portfolios are underallocated to international opportunities.
  2. Global stocks have cheaper valuations than U.S. counterparts.
  3. Economic and company growth prospects can be greater outside the U.S.

The third point is what Fundamental Equities portfolio manager and active stock picker James Bristow encapsulates in one word particularly well suited to post-pandemic life: excitement. The type of excitement he refers to is the innovation and dynamism that is driving strong company earnings across sectors and around the world ― a great share of which is outside the U.S.

Mr. Bristow has been at the helm of the the BlackRock International Fund for 14 years, successfully weathering multiple business cycles, including the 2008 Global Financial Crisis and the ongoing COVID-19 pandemic.

As vaccines pave the way to broader economic reopening and recovery, Mr. Bristow is eyeing up what he sees as significant investment potential. While markets globally have come a long way and many recovery stories are already built into pricing, Mr. Bristow and team are looking for companies that have not yet priced in their full potential or those poised to emerge from the COVID crisis even stronger than they were before it.

Where does optimum excitement reside? Mr. Bristow takes a company-by-company approach to arrive as his high-conviction ideas, but he offers three themes for consideration in the current environment:

Building for the future

Fiscal and monetary stimulus during the crisis has been unprecedented. Low interest rates make borrowing for infrastructure improvements more attractive for businesses and individuals alike. Governments are also more committed than ever to environmentally friendly improvements, which should compel further demand for raw materials and building essentials. This should benefit stocks across the industrials complex. Opportunity also exists in the electric vehicle (EV) supply chain, including some traditional original equipment manufacturers as well as EV battery suppliers.

Digital first

Work from home and contactless activities of all stripes have reset expectations for the future of computing and digitization. Many investors believe the U.S. and China are the only ports for innovative technology, yet many overlooked opportunities reside in Europe, Japan and emerging markets across Asia and Europe.

Mr. Bristow and team look for attractive growth trends that are mature in the U.S. but in early stages in more nascent economies. Several of these fall into the ecommerce category, where penetration rates are low but rising.

Social restart

Nowhere is excitement more palpable after months of lockdown than in areas related to socialization and celebration, a trend already reflected in valuations for many travel and leisure companies. We believe shares in Europe’s airlines can take off once local restrictions are lifted, consistent with patterns seen in the U.S.

Fundamental Equities’ data scientists have noted an uptick in visits to airline websites, as shown in the chart below ― providing some early evidence of the prospects in Europe. One underappreciated opportunity: digital payment providers, which could benefit from a pick-up in travel and cross-border transactions.

Readying for take-off?
Change in online airline search, 2020-21 vs. two years prior

Change in online airline search, 2021 vs. two years prior

Source: BlackRock, with data from Similarweb, as of May 31, 2021. Chart shows the change in daily visits to airline websites for the month shown vs. the same month two years prior. Each line represents a weighted average of an amalgamation of U.S. and European airlines.

Importantly, today’s winning themes may be outdated tomorrow. This is particularly true in this fast-moving business cycle. Active stock pickers like Mr. Bristow stand ready to capitalize as the backdrop ― and the opportunity set ― changes.

Going bottom-up for upside

Flows into global equities have been robust this year, signaling the market is aggressively anticipating the recovery. As the cycle evolves, Mr. Bristow sees individual stock selection gaining in importance. Divergences will increase, and the decisions will not be as broad as which industry or which country, but which individual companies within each. This, Mr. Bristow says, epitomizes “excitement” for bottom-up stock pickers, as this is the type of environment in which deep research and high conviction can set an active portfolio apart from the broad global indexes.

James Bristow
James Bristow, CFA, Managing Director and portfolio manager