Alpha Moguls | Kenneth Andrade On Why This Investment Cycle Is ‘Markedly Different’
The current investment cycle is markedly different from the economic downturns of 2009 and 2013 in that corporations aren’t fighting to stay relevant, said Kenneth Andrade.
This, according to the founder and chief investment officer of the money management firm Old Bridge Capital, gives enough “ammo” in terms of confidence to a fund manager to go out and invest in businesses and make portfolio gains over the next few years.
“The ability of a company to remain solvent in the next decade is much higher where you have the leverage cycle playing out,” Andrade said in the latest episode of BloombergQuint’s special series Alpha Moguls, citing an improvement in fundamental market factors.
The money manager, whose portfolio return has slumped this year due to a correction in the broader markets, said mid-cap stocks are “products with a price tag of 30 to 60 percent off”. “You’ll always get bad product, but you’re getting a good bargain. That’s the way you need to approach it.”
Andrade predicted that businesses could operate at maximum capacity in the next three years if they maintain their current growth levels. Companies would benefit due to pricing, expansion and working capital if they achieve optimum capacity aided by the current growth rate of 6-7 percent through the next business cycle, he said.
‘Large Firms Are Playing Catch-Up’
The FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks and a few large Indian companies have dominated the markets in the last five years—in terms of earnings and appreciation. Not for long, said Andrade.
Barring a company or two, large businesses were “playing catch-up” from their performances in the previous business cycle, he said. “The return profile is nearly the same, be it the three-year average in the (large-cap) basket or some of the better-performing baskets in the mid-cap and small-cap space.”
‘Investors Must Buy Low, Sell High’
News sentiment is generally a guide to a stock’s performance, but Andrade differs. Markets “digest most of the bad news that will come”, he said. “But good news doesn’t necessarily translate into a positive impact on stocks.”
“I’m not saying markets won’t behave the way they’re supposed to,” he explained. “Investors must behave as they always ought to: buy lower and sell higher.”
A re-alignment of portfolios has already taken place, the fund manager said, or could take place in the next six months.
(Corrects earlier version to update Andrade’s designation.)