Global investors have been too quick in dismissing the competitive edge US tech giant Apple has accrued over its peers and underestimated the positive effects of its latest products.
That is the view of Dave Eiswert, fund manager of the T Rowe Global Focused Growth Equity fund, who told Citywire Global that the Silicon Valley favourite remains his biggest holding despite recent share price fluctuations.
The stock has been on rocky footing in the past few weeks, suffering one of its biggest declines after Apple withdrew an update to its new operating system, and has been among the most actively traded shares of the S&P500 throughout the whole year.
Eiswert cited accelerating EBITDA growth in the product cycle and a strong focus on R&D as the main drivers of the company’s performance.
‘Other investors are catching on to why we’ve owned Apple for a long time. They thought it was going to end up like Nokia or [BlackBerry maker] RIM, and they vastly underestimated how well the new iPhones are going to do, a thesis that will play out over the next six to twelve months,’ he said.
Within the technology space, Eiswert is taking advantage of specific themes, like the demise of the PCs in favour of mobile devices and the shift from enterprise IT to cloud computing.
‘You also see a heavy weight towards the internet in the portfolio: in China we own Baidu, Ctrip, Alibaba and Vipshop [China’s largest flash sale website]. In the USA you'll see names like Autodesk, and NetSuite, which are both software companies moving to the cloud.’
Show me the Capex
According to Eiswert, another head start for Apple in the fierce competition animating the tech arena is the $11 billion it spends on capex every year. In his view, reinvestment has been the great absent of the global recovery so far.
‘After 2007, what we’ve seen is a distortion in how businesses look at the future. CEOs in boards are saying: 'We'll never going to grow again, let’s focus on pushing operating margins as high as we can’.’
‘We've seen a big push to limit capacity growth across lots of industries all over the developed world. That behaviour in itself will create a capex cycle eventually, because if you under-invest long enough, prices start to go up. That will lead to incremental spending on capex, and I think this has already started to happen in the US.’
Industrials leading the way in Europe
Elsewhere in the fund, Eiswert is repositioning to reduce the portfolio's underweight to Europe, where he is mainly invested within the industrials sector, with names including Hexagon AB (Swedish geospatial tech company), Brenntag (German chemical distributer) and Holcim (Swiss cement company).
‘We've been adding to these positions in the last two months, as the euro has started to weaken dramatically and European stocks have underperformed. We think there's an interesting opportunity there,’ he said.
Over the three years to the end of September 2014, the T Rowe Global Focused Growth Equity has returned 66.75%. This compares to a rise of 61.15% in the Citywire-assigned benchmark, the MSCI AC World TR USD (data expressed in US dollar terms).