Economic network

Tribeca Alpha Plus 2022 Fund Snapshot

Jun Bei Liu, lead portfolio manager of Tribeca Investment Partners’ Alpha Plus Fund, talks about the top issues investors will face in 2022.

Melissa Darmawan: Thank you for signing in. I’m Melissa Darmawan from the Finance News Network. Jun Bei Liu, Portfolio Manager of Tribeca’s Alpha Plus Fund, joins me today to talk about the top issues facing investors in 2022. Jun, nice to meet you and happy new year.

Jun Bei Liu: Looking forward to meeting you, and happy new year to you too. Thank you for hosting me.

Melissa Darmawan: It’s been almost two months since we discovered Omicron. Can you give us your thoughts on the situation, and what it means moving forward?

Jun Bei Liu: We’re actually starting to see a bit of that, that policymakers are now starting to really revise, and think about how they’re dealing with…well, how they’re handling the pandemic. We have to learn to live with this virus. So now we see that even though cases are increasing around the world, we don’t see that businesses are being forced to close. Yes, companies have to put a higher cost to make sure their employees are safe, and it’s all under control. But they don’t have to close. Which means that the economies are still able to move forward, even if that means that in the future, we may have more variants, but we know how to live with it. And that’s a big tick.

Now, second, what this means, however, on the negative side, it means that the disruption to the economy in terms of recovery will be prolonged. So we have severe labor shortages, a lot of material shortages, and so on. And especially the shortage of manpower. Right now it’s escalating, getting worse, because of Omicron. You know, every other day we hear from people who we know have become close contacts, or people have to take a day or two off to test whether they’re positive or negative. So, you know, we see empty shelves in supermarkets. We find that the cars cannot be delivered. And those disturbances will be there. Inflation could pick up, just because costs are rising, but that’s likely to be temporary for the next six months.

Melissa Darmawan: There has been a lot of attention on the US Federal Reserve bracing for rate hikes, to combat soaring inflation, which is at four-decade highs. Can you give us your thoughts on this situation and what it might mean moving forward?

Jun Bei Liu: Everyone wants to know, what’s going to happen? The interest rate goes higher. People tend to make a direct correlation, saying as interest rates go up, the stock market will crash. This will not be the case. Remember that the reason the interest rate is so low is due to a pandemic. And when the policymaker, when the Fed or the RBA, when they decided that all that free money, or cheap money, had to be in the system, that’s when we didn’t have no vaccination, that’s when we didn’t know what was going to happen with the pandemic, the very first days of the pandemic, if you remember, two years ago.

And then, with that mindset in place, they set up all this free money for people to use, because they don’t know how the economy is going to deal with the pandemic. And now that we have the vaccination, we’re looking at all the different variants. We have a global economy that is recovering very well, even though we have different virus variants. And then it’s just time for any central bank to say, “Look, we’re just going to normalize this. It’s not a tightening, it’s a normalization. Even if they raise their rates, as market participants suggest, they are still significantly lower than they were before the pandemic, when the economy was doing well.

So Australia will probably be the same, the latter part of this year. We may have interest rate increases. But, look, it’s still going to be way below where it was before the pandemic. And it’s the right thing to do. And that’s actually very healthy for the stock market, just because economic activity is strong, and it’s a good environment for us.

Melissa Darmawan: Globally, the drums of war seem to be beating, with China making aggressive noises regarding its unification with Taiwan. And, in Russia, they are building their military forces along the Ukrainian border. What does this mean for the markets if this gets really serious?

Jun Bei Liu: The stock market never likes uncertainty. And there’s always a tail risk — we call it a tail risk because it’s a very small chance of it happening — that it gets more serious. And then it creates a lot of problems for stock markets because they’re just not designed to expect something like this to happen. Now, my point is, look, there’s always noise about war somewhere in the world. Now, given the rise of China, which is the second largest economy, we will always have conflicts here and there. And it’s likely we’ll have to learn to live with it. But we don’t think it’s going to escalate significantly, just because I think diplomacy has really come a long way now. There’s the whole conversation. And real war creates so much disruption in any economy, no matter who is intervening in those situations. And, above all, China is at a crossroads. This year has been a very important year for China. And it is in their interest to lead an economy on its prosperous path. So we don’t expect that to happen. But, of course, there will be a lot of news. There will be a lot of discussion about this. And, in stock markets, we think that’s a very small risk.

Melissa Darmawan: Last question to you. Which sectors should investors watch this year, and where are the likely tailwinds?

Jun Bei Liu: Obviously, you should go for companies that go through revenue cycles. So in terms of top to bottom you look at which sectors, those are the sectors that have been impacted by the pandemic. So those are the ones, whether it’s travel, services, those are the companies that have made virtually no money in the last couple of years. Of course, their earnings are going to be phenomenal in the future. And the consumers, they’ve been locked up at home for so long. And there’s not much online shopping they could do. They want to go out, they want to have experiences, they want to travel. So these sectors will bode very well for this year and also for the next few years, just as we are going through a consumption boom for these sectors.

Now, of course, there are other sectors that are also linked to the global recovery. So, you know, the resource sectors. We think China will give a bit more stimulus this year, and that should boost commodity prices pretty well. And we expect the resource sector to perform well. And the energy, of course, of this resource sector, bodes well.

So all of these sectors should do very well. But one thing I always like to remind investors, you know, top-down investing will make you money, but that’s never where you generate most of your returns. Most of the return is always bottom-up. Find the companies that do the right thing, have something unique about them and have a great and strong management team, and can lead the company through its vision and deliver structural growth.

So it’s about finding the right company from the bottom up, rather than buying the whole industry or market. So, in fact, 2022 may present you with an opportunity to pick up some of the cheap tech companies because they’ve been sold. They are in disgrace. But remember, the tech industry is very different today than it was in the early 2000s. They’re market leaders, they’re profitable, they’re making a lot of money. And then they have so much market power and position, that they are truly future proof of any investor’s portfolio. So, good opportunity to take over some of these companies, even if the sector may not be in vogue anymore. So look, it’s a great playground for active investors. And I think 2022 will be a great year.

Melissa Darmawan: Jun, thank you very much for your ideas and I wish you a happy new year 2022.

Jun Bei Liu: Thank you very much.