(Bloomberg) -- The steadfast stock market of 2017 turned into a roller coaster this year by the time President Donald Trump tweeted, "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win."
The rhetoric directed at China soon became Trump tariffs on imported aluminum and steel. China responded with duties on 128 products, including pork, wine, seamless steel pipes and, subsequently, soybeans and cars. All of which will depress U.S. manufacturers and farmers while driving up costs for American consumers.
Daily price fluctuations of the thousands of publicly traded companies caught in the U.S.-China crossfire are the most extreme since 2015, as measured by a rise in the VIX Index to a 2018 average level that is 38 percent higher than its average during the past two years, according to data compiled by Bloomberg. But among the 1,000 mutual funds investing worldwide, the No. 1 performer the past five years is treating the imbroglio between the two largest economies as so much noise rather than a signal.
That investor is Noah Blackstein, the 48-old Canadian who runs the Toronto-based, $1.2-billion Dynamic Power Global Growth Class Fund. His fund produced a 194 percent total return (income plus appreciation) since 2013 by investing heavily in China assets (33.26 percent) and in U.S. shares (40.21 percent), and he has no plans to change those proportions.
"I'm obviously watching the trade wars, as there's obviously some sensitivity overall to what's going on and where this whole thing plays out," he said in a telephone interview earlier this month. "For the most part, I don't really see it dramatically affecting the companies I own."
For Blackstein, whose returns were more than triple the average performance of his peers for the last five years, China and the U.S. are essential to his success. He holds shares of only 23 companies, buying and selling them at the sixth-fastest rate among 1,000 peers, according to data compiled by Bloomberg. Not even larger China-based funds deliver his consistently stellar returns.
"I don't invest in economies," he said. "I invest in companies, and my focus is finding the biggest opportunities for growth, wherever they lie in the world, be they in technology, health care and retail, and they seem primarily to reside in the U.S. and China. You know, probably 10 years ago about one-third of the Chinese gross domestic product was exports, and that's come down to below 20 percent because China is moving towards domestic growth and domestic consumption."
Blackstein's three largest holdings — Chaoyang-based social media platform Weibo Corp., the Guangzhou-based live-streaming audio-video-text group organizer YY Inc., and Santa Clara-based enterprise information technology management software maker ServiceNow Inc. — reflect his emphasis on the growth potential of "domestic companies focused on payments and consumption." His recent acquisitions include the Hangzhou online infrastructure-e-commerce giant Alibaba Group; PayPal Holdings Inc., the San Jose-based digital and mobile global payments system; Daifuku Co. Ltd., the Osaka-based maker of automated sorting and storage for manufacturers and distributors; and Moscow-based Yandex NV, which sells and operates internet search engines and websites in Russia.
"I'm always looking for companies where there is not only growth, but the ability to sustain that growth, and the Chinese companies we own are not export-led, industrial companies," Blackstein said. "They're domestic companies with the desire of advertisers to meet and engage customers to continue to shop online, and these are the areas of the economy that will continue to grow."
Far from fretting about the looming trade war, Blackstein said that his biggest concern "is with a central bank mistake that can derail the economy." He cited concern about actions by the U.S. Federal Reserve that might allow short-term interest rates to exceed bond yields, a phenomenon known among investors as inverting the yield curve.
"So if you're asking what my biggest macro concern is, it rests at the Fed for now and not in U.S. trade," Blackstein said. "The two biggest economies are so intertwined and global supply chains are so complex that for sure there will be a deal and a negotiation."
Blackstein said he has "yet to see to a crisis not begin at a central bank," and that the combination of six Fed interest rate increases since 2015 and the prospect of more on the way is more worrisome than trade wars. In the meantime, he said, his faith in the strength of the Chinese and U.S. companies he selects is unshaken.
"The starting point for me always is the company and the question of its sustainable growth," he explained. "Back when I started, in the early 1990s, that's how funds were run, and it's kind of a sad state of affairs that we've gone to a point of view where that isn't the most important thing."
(With assistance from Shin Pei)
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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