(Bloomberg Opinion) -- One of the world’s most successful stock pickers showed no sign of losing his touch this year after consistently beating the benchmarks since 2009. What’s changed for him, though, are the countries where he focuses his investment strategy in a disordered world poised for future disarray.
Noah Blackstein's Dynamic Power Global Growth Fund returned 307% during the past decade, more than double the MSCI World Equity Index among 1,000 major mutual funds worth at least $200 million. The U.S. and China, the two biggest economies, dominated his results until recently.
But his latest choices mark an unprecedented turn in Dynamic Power's composition and coincide with President Donald Trump's threatened and imposed tariffs on goods and services from China, the European Union, Mexico and Canada. The U.S. and China, which accounted for almost 90% of Dynamic Power at the beginning of 2015, represent just 26% of its assets this year with only Hangzhou-based Alibaba left as a 3% China holding. Argentina, the most risky and least creditworthy of 65 nations in market data compiled by Bloomberg, is No. 2 behind the U.S., with 13% of the Dynamic Power portfolio.
During the past three years, when the world's gross domestic product increased 14% and GDP for China and the U.S. gained 24% and 12%, respectively, global trade declined for the first time since 1969, according to data compiled by Bloomberg. As global exports diminished, China's five-year rolling average of exports increased 8% to $2.4 trillion. U.S. exports were little changed at $1.5 trillion.
Throughout the past four years, when benchmarks for the Group of Seven countries plus China returned (income plus appreciation) 44% on average, Blackstein's fund was still ahead with a 47% return. The U.S. remains the best performer for the period at 66%, followed by Canada, 52%, France, 41%, Italy, 38%, the U.K., 35%, Germany, 33% and Japan, 18%. China was least lucrative at 8?%, according to data compiled by Bloomberg.
The shifts weren’t meant to yield a short-term payoff, and Dynamic Power’s 2019 performance was about average among its peers, with a total return of 24% so far.
Unlike many of his peers, Blackstein decides what to buy and sell solely on the prospects of roughly two-dozen companies he chooses. He doesn’t focus on geography, just corporate growth potential. Yet his latest investments show that he now sees the greatest opportunity in Japan (9.88% of his holdings), Israel (9.51%), Canada (9.01%), Brazil (7.03%), Singapore (5.97%), Russia (4.02%), New Zealand (4.01%) and the Netherlands (3.81%) among his top 10 picks led by the U.S. and Argentina, according to data compiled by Bloomberg.
“I'm not a top-down person; I'm not a macro person,” Blackstein said in an interview earlier this month. “The only way I've made money” since Dynamic Power began in 2001 “has been focusing on the companies that can be substantially larger wherever they reside. For sure, over the last decade the biggest winners have been in the U.S. and China. But the allocation of the fund really comes from the bottom up and I think there are a lot of interesting things going on around the world in Asia, the U.S. and South America.”
He jettisoned most of his Chinese investments when it became apparent that a “regulatory crackdown last year in China was severe and significant in a whole host of industries,” including “pharmaceuticals, after-school education, internet advertising, videos and changes in fintech laws,” he said. “I think a lot of people attribute weakness there to the trade war. But from my perspective, a lot of what went wrong with a lot of companies there was sort of played out on the regulatory side.”
Right now, Blackstein's favorite holdings are PagSeguro Digital Ltd., the Brazil-based provider of digital-payment systems (8.43%); Newtown, Pennsylvania-based EPAM Systems, Inc. a software developer (6.601%); Ottawa-based Shopify Inc., a cloud-based commerce platform (6.31%); MercadoLibre, the Buenos Aires-based online trading site (5.83%) and Singapore's Sea Limited, which provides personal computer and mobile content platforms (5.81%).
“The opportunities, whether they're in the U.S., Asia or South America, have a lot to do with re-platforming technology and the digital transformation of enterprises, or what we're seeing in health care, new medicines, combination therapies, new medical devices and emerging retailers,” Blackstein said.
“Am I having trouble finding companies to invest in? I'm not.”
--With assistance from Shin Pei.
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Matthew A. Winkler is Co-founder of Bloomberg News (1990) and Editor-in-Chief Emeritus; Bloomberg Opinion Columnist since 2015; Co-founder of Bloomberg Business Journalism Diversity Program in 2017. During his 25 years as Editor-in-Chief, Bloomberg News was a three-time finalist and winner of the Pulitzer Prize for Explanatory Reporting and received numerous George Polk, Gerald Loeb, Overseas Press Club and Society of Professional Journalists and Editors (Sabew) awards.
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