Fund manager Niche Asset Management says it has identified a new niche for its trademark approach to investment management. The asset management firm specialises in identifying both short and long term niches within global equity markets, some of which can grow into new strategies within its Niche Jungle project platform.
The “Deglob Niche”
Massimo Baggiani, Co-founder of Niche Asset Management, explained:
“We are using this phase of market confusion to add a new niche. The market continues to be worried about central banks raising rates. Central banks are worried about inflation. Persistent inflation is in the current environment both inevitable and positive.
“Inevitable because the deflationary effect that China has exerted for two decades, sending much of the world into stagnation, is gradually disappearing. Positive because it reflects huge investments directed towards the energy transition and the rebuilding of a more reliable supply chain. It will bring down public and private debt. It will restore some of the social equity lost in recent years. It will lay the groundwork for a rise in the value component of the market that, when it comes, will be formidable, not unlike what we saw in similar situations in 1950 and 1982.
“Rising rates will not stop these investments but will inevitably bring problems to areas that have adapted to a very low-rate environment. We are witnessing and will witness a general clean-up of speculation that is still strong. The victims, as always, will be those who have taken the most risk; namely those who have benefited from a lot of debt or excess liquidity to seek returns in speculative investments.
Threat to private equity and private debt
“While much of the Private Equity and Private Debt around is of quality, there is a not insignificant part of it that will go bad. It will be understood that returns of 15%/25% per year are not always the result of shining minds, but rather of the most trivial leverage. It is easily understood that a number of these gentlemen have been exchanging assets for years in order to make famous exits. Other areas also need to be checked, in particular those that are sympathetically termed ‘real assets’, a definition that tends to create an inappropriate sense of full comfort in the end investor.
“We, as free-range and unrefined individuals, keep an eye on Bitcoin, which has recovered well this year. Indeed, we are convinced that the beginning of the fall in rates and the subsequent historic rally in equity (value) will precede the final collapse of cryptocurrencies, the summa maxima of a historical phase defined by unbridled globalisation, global stagnation, a riot of inequality and nationalism, negative rates and speculation.
Why a ‘deglob’ niche?
“We have frequently discussed deglobalization. If globalization has been the dominant theme of the past 20 years and understanding it and following it with the right investment choices would have helped a lot. In the next 10 years deglobalization, we believe, will have equally profound repercussions. Many sectors will be affected and that could completely overhaul, positively or negatively, their business structures. We have therefore created a portfolio within the Pharus Asia Value Niche fund including companies that will benefit from these changes.
“The sectors that are the most diverse, from companies related to the semiconductor ecosystem, ingredients for pharmaceuticals, construction, metal refining, steel, communications infrastructure, renewables and many others.
“As always with our chosen niches, there will have to be three characteristics. In addition to being able to benefit from deglobalization, companies within the ‘deglob’ niche will have to have ‘deep value’ valuations, in line with our approach, and they will have to be sustainable in the sense that they will have to position themselves on a path of gradual improvement with respect to social, environmental and governance factors.
“Through direct interaction with companies, we are committed to ensuring and documenting this. The new Niche starts with a weight of 1.5 per cent and has a maximum weight of 2.5 per cent of the portfolio’s NAV. Initially it consists of 15 securities which we will gradually increase to 25.”
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