One of the world’s largest public pensions by assets made major changes in its investments in large-cap tech stocks as 2021 came to a close.
PGGM of Zeist, Netherlands, cut investments in Apple (ticker AAPL), Intel (INTC), and Qualcomm
(QCOM) stock in the fourth quarter, and initiated a position in Nvidia (NVDA) stock, according to a form it filed with the Securities and Exchange Commission.
PGGM, which managed $327 billion in assets as of Dec. 31., didn’t comment directly on the stock trades. “PGGM has a passive strategy for listed equities, so we don’t have a specific view on specific companies,” it said in a statement.
The pension sold 1.1 million Apple shares to end 2021 with 3.6 million shares of the iPhone maker. The stock rose 34% in 2021, topping the 27% rise in the
S&P 500 index. So far this year, shares are down 3% while the index is down 5.6%.
Near the end of December, Apple’s market capitalization approached $3 trillion, but it didn’t cross that mark until early January. One analyst saw a path for the company’s market cap to hit $4 trillion. Apple reported a strong fiscal first quarter at the end of January. “Demand for Apple products and services is materially outpacing supply and when the supply chain normalizes then Apple’s sales and margins will only accelerate higher, in our view,” a Citi analyst noted.
Intel stock hasn’t had the upward trajectory that Apple’s has had. The embattled chip giant saw shares gain 3.4% in 2021; so far this year, shares have dropped 6.8%.
Last year, analysts covering Intel had a skeptical take after the company’s spending climbed under new CEO Patrick Gelsinger, who told us in July the company could “triple, quadruple” in value. Gelsinger was among Intel insiders who bought up stock on the open market in October.
Late last year, though, PGGM was selling Intel stock, shedding 205,000 shares to cut its holdings to 1.3 million shares.
The pension also sold 223,317 Qualcomm shares to end the year with 509,533 shares of the maker of wireless chips and technology. Like Intel, Qualcomm underperformed the S&P 500 in 2021, rising 20% So far this year, Qualcomm shares have dropped 1.9%.
In January, CEO Cristiano Amon told us he was bullish on Qualcomm’s long-term outlook. The company is a play on multiple emerging trends, including connected cars, the metaverse, edge computing, wireless fiber, and next-generation laptops. Earnings, reported last week, were strong, but investors weren’t impressed at first.
Unlike the other two chip makers, Nvidia had a boffo 2021, with shares rocketing 125%. So far this year, Nvidia stock has dropped 17%, one of the more-bruised names as the tech sector was socked in a January market slump.
Particular to Nvidia, the company’s deal to acquire microprocessor design house Arm Holdings from SoftBank Group (SFTBY) now seems to have foundered. Other potential Arm buyers including Intel and Qualcomm don’t look likely to clear regulatory hurdles.
AUSTRALIA
Pension Chief Set to Run $164 Billion Buys U.K., Europe Dip
Matthew Burgess
Mon, February 7, 2022
(Bloomberg) -- Whether to buy the dip in stocks is among the most pressing questions in markets. For one big investor the answer is indeed yes -- at least outside the U.S.
Sunsuper Pty.’s Ian Patrick, the chief investment officer set to control Australia’s second-biggest pension pot, is arming his fund for the long haul by scouting for bargains in the U.K. and Europe.
Shares there are cheaper compared to U.S peers and “classic signals” are not pointing to an imminent recession or financial crisis in the region, he said in an interview. His fund is set to merge with larger rival QSuper by the end of this month, when he’ll then oversee about A$230 billion ($163 billion) of assets.
“You could say that we’ve been buying the dip,” said Patrick, who currently oversees A$85 billion at Sunsuper. Markets were lulled into a false sense of what the “new normal” looked like last year “and this is a bit of a return to reality,” he said.
Global equities have been shaken by concerns that faster-than-expected monetary-policy tightening will derail economic growth. MSCI Inc.’s index of world shares is down some 5% this year and the so-called “fear gauge” for U.S. stocks, the Cboe Volatility Index, remains at above-average levels.
Patrick reckons European and U.K. stocks have been weighed down by weaker fundamentals and capital flight to big tech firms, making their valuations more attractive than for U.S. peers.
They’ve also been hit by negative sentiment fueled by demographics, structural economic issues and geopolitical tussles, he said. Sunsuper’s equity bets are currently tilted toward durables and materials over tech.
The fund’s stance is similar to one it took in September 2020, preferring European shares and developed markets outside the U.S. in a bet that vaccine developments would provide a fillip to equities. Since then, the S&P 500 Index has climbed 32%, while the STOXX Europe 600 Price Index gained 27% and the FTSE 100 increased 25%.
Avoiding Value Traps
“We fully anticipate that on a month-by-month basis, or even a half-year by half-year basis, that valuation differential won’t necessarily be realized, but we’re confident in the medium term it is,” Patrick said. “There is absolutely the chance that you could go three years before the position is rewarded.”
Patrick said he avoids so-called value traps by being “very disciplined” on bet sizes, and spreading cash across geographies to ensure no one position is dominant. The strategy saw Sunsuper return 16.5% last year, the nation’s third-best performing pension, beating the industry’s 13.4% median gain.
To protect the portfolio from market shocks, Patrick is shying away from bond markets even as yields jump. The fund is about 1% underweight bonds, particularly European and U.K. debt. Outside stocks, Sunsuper instead prefers private credit, infrastructure and utilities assets with revenue streams not linked to economic growth and foreign currencies, to help cushion any volatility.
“Definitely pricing in bond markets is less extreme than it was, but the conditions for a reversion to previous very low levels don’t appear to be imminent, or part of the medium term horizon,” he said. “There are other ways to set the portfolio up for a desired level of defensiveness.”
Pension Chief Set to Run $164 Billion Buys U.K., Europe Dip
Matthew Burgess
Mon, February 7, 2022
(Bloomberg) -- Whether to buy the dip in stocks is among the most pressing questions in markets. For one big investor the answer is indeed yes -- at least outside the U.S.
Sunsuper Pty.’s Ian Patrick, the chief investment officer set to control Australia’s second-biggest pension pot, is arming his fund for the long haul by scouting for bargains in the U.K. and Europe.
Shares there are cheaper compared to U.S peers and “classic signals” are not pointing to an imminent recession or financial crisis in the region, he said in an interview. His fund is set to merge with larger rival QSuper by the end of this month, when he’ll then oversee about A$230 billion ($163 billion) of assets.
“You could say that we’ve been buying the dip,” said Patrick, who currently oversees A$85 billion at Sunsuper. Markets were lulled into a false sense of what the “new normal” looked like last year “and this is a bit of a return to reality,” he said.
Global equities have been shaken by concerns that faster-than-expected monetary-policy tightening will derail economic growth. MSCI Inc.’s index of world shares is down some 5% this year and the so-called “fear gauge” for U.S. stocks, the Cboe Volatility Index, remains at above-average levels.
Patrick reckons European and U.K. stocks have been weighed down by weaker fundamentals and capital flight to big tech firms, making their valuations more attractive than for U.S. peers.
They’ve also been hit by negative sentiment fueled by demographics, structural economic issues and geopolitical tussles, he said. Sunsuper’s equity bets are currently tilted toward durables and materials over tech.
The fund’s stance is similar to one it took in September 2020, preferring European shares and developed markets outside the U.S. in a bet that vaccine developments would provide a fillip to equities. Since then, the S&P 500 Index has climbed 32%, while the STOXX Europe 600 Price Index gained 27% and the FTSE 100 increased 25%.
Avoiding Value Traps
“We fully anticipate that on a month-by-month basis, or even a half-year by half-year basis, that valuation differential won’t necessarily be realized, but we’re confident in the medium term it is,” Patrick said. “There is absolutely the chance that you could go three years before the position is rewarded.”
Patrick said he avoids so-called value traps by being “very disciplined” on bet sizes, and spreading cash across geographies to ensure no one position is dominant. The strategy saw Sunsuper return 16.5% last year, the nation’s third-best performing pension, beating the industry’s 13.4% median gain.
To protect the portfolio from market shocks, Patrick is shying away from bond markets even as yields jump. The fund is about 1% underweight bonds, particularly European and U.K. debt. Outside stocks, Sunsuper instead prefers private credit, infrastructure and utilities assets with revenue streams not linked to economic growth and foreign currencies, to help cushion any volatility.
“Definitely pricing in bond markets is less extreme than it was, but the conditions for a reversion to previous very low levels don’t appear to be imminent, or part of the medium term horizon,” he said. “There are other ways to set the portfolio up for a desired level of defensiveness.”
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