Tribeca Alpha Plus Fund 2022 Preview

Funds Management

by Melissa Darmawan

Jun Bei Liu, lead portfolio manager for Tribeca Investment Partners' Alpha Plus Fund, talks about the key issues investors will face in 2022.

Melissa Darmawan: Thanks for tuning in. I'm Melissa Darmawan for the Finance News Network. Joining me today to talk about the key issues investors are set to face for 2022 is Portfolio Manager of Tribeca's Alpha Plus Fund, Jun Bei Liu. Jun, nice to meet you, and happy new year.

Jun Bei Liu: Nice to meet you, and happy new year to you too. Thank you for having me.

Melissa Darmawan: It's been almost two months since we found out about Omicron. Can you give us your take on the situation, and what this means moving forward?

Jun Bei Liu: We are actually beginning to see a little bit of it, that the policy-makers are now starting to really revise, and think about how they treat... Well, how they deal with the pandemic. We've got to learn to live with this virus. So, now we're seeing that even though the cases are surging around the world, we are not seeing that businesses are being forced to shut down. Yes, the businesses have to put a higher cost so they can make sure their employees are safe, and all of that are in check. But they're not being forced to shut down. Which means that economies are still able to move forward, even if it means that, in the future, we may have more variants, but we know how to live with it. And that's one big tick.

Now secondly, what it does mean, though, on the negative side, it does mean that disruption to the economy in terms of recovery will be prolonged. So, we're experiencing severe labour shortages, a lot of material shortages, and things. And especially the labour shortage. At the moment, it's actually intensifying, it's getting worse, because of Omicron. You know, every second day we're hearing people who we know have become close contacts, or people need to take a day off or two to test whether they're positive or negative. So, you know, we're seeing empty shelves in the supermarket. We're seeing cars are not able to be delivered. And these disruptions will be here. Inflation might pick up, simply because the costs are going higher, but it's likely to be temporary for the next six months.

Melissa Darmawan: There's been a lot of attention about the US Federal Reserve gearing up for rate hikes, to combat surging inflation, which is sitting at four-decade highs. Can you give us your view in regards to this situation, and what this could mean moving forward?

Jun Bei Liu: Everyone wants to know, what's going to happen? Interest rate's going higher. People tend to draw a direct correlation, saying interest rate's going higher, share market is going to crash. That is not going to be the case. Remember, the reason that the interest rate is as low as it is, is because of a pandemic. And when the policy-maker, when the Fed, or RBA, when they decided all of these free money, or cheap money, to be in the system, that's when we didn't have vaccination, that's when we didn't know what's going to happen with the pandemic, the very early days of the pandemic, if you remember, two years ago.

And then, with that mindset in place, they put in place all of this free money for people to use, because they don't know how the economy will cope with the pandemic. And now that we've got vaccination, we've lived through all the different variants. We've got a global economy recovering just fine, even though we've got different variations of virus. And then it's just time for any central bank to be saying that, "Look, we're just going to normalise that." It's not tightening, it's normalisation. Even if they put up their rates, as suggested by the market participants, it's still severely below what it was before pandemic, where the economy was doing okay.

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

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

Jun Bei Liu: The equity market never likes uncertainties. And there's always a tail risk -- we call it a tail risk because it's a very small chance for it to take place -- for this to become more serious. And then it creates a lot of problems for share markets, because they're just not built to expect something like that to happen. Now, my view is that, look, there's always noise about war somewhere around the world. Now, given the rising power of China, being the second largest economy, we will always have conflict here and there. And it's likely that we'll have to learn to live with it. But we don't think it'll be escalated to a significant way, just because I think the diplomacy has really come a long way now. There's all the talk. And actual war creates so much disruption to any economy, whoever steps up into those situations. And, particularly, China is at its crossroads. This year has been a very important year for China. And it's in their every interest to bring an economy through its prosperous path. So, we don't expect that to happen. But, of course, there will be a lot of news flow. There will be a lot of talks about it. And, in equity markets, we think it's a very small risk.

Melissa Darmawan: Final question to you. What sectors should investors keep an eye out for this year, and where are the likely tailwinds?

Jun Bei Liu: Obviously, you have to go for the companies that are going through earning cycles. So, in terms of top down, you look at what sectors, it's the sectors that have been impacted by the pandemic. So, these are the ones, whether it's travel, whether it's services, these are the businesses that hardly made any money in the last couple of years. Of course, their earnings are going to look phenomenal going forward. And the consumer, they have been locked in their houses for so long. And there's only so much online shopping they could do. They want to get out, they want to experience, they want to travel. So, these sectors will bode very well for this year and also for the next few years, just as we go through a consumer boom for those sectors.

Now, of course, there's other sectors less linked to global recovery as well. So, you know, the resources sectors. We think China will give a bit more stimulus this year, and that should drive the commodity prices pretty well. And we expect the resources sector to perform well. And the energy, of course, out of that resource sector, is going to bode pretty well.

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

So, it's about bottom up, finding the right company, rather than buying the whole sector or the market. So, actually, 2022 will provide an opportunity for you maybe to pick up some of the cheap tech companies, because they've been sold off. They're out of favour. But remember, the tech sector's very different today compared to the early 2000s. They're market leaders, they're profitable, they make a lot of money. And then, they have so much market power and position, that they really future-proof any investor's portfolio. So, good opportunity to pick up some of those companies, even though the sector may be out of favour. So, look, it's a great playground for active investors. And I think 2022 is going to be a great year.

Melissa Darmawan: Jun, thanks so much for your insights, and I wish you a great 2022.

Jun Bei Liu: Thank you very much.


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