Assuming interest rates have peaked for at least the next few years, Arindam Mandal of Marcellus Investment Managers believes American Tower could be a strong investment over the next 3-5 years.
As tower REITs, their share prices were significantly impacted by rising interest rates, which has prompted Marcellus to begin building a position in the first quarter of this year, said Arindam who has more than 14 years of experience in the investment management, in an interview to Moneycontrol.
Events like the US election could trigger an absolute market level volatility or it can trigger a market rotation (from leaders to laggards) as well, according to the head of global equities. Prior to joining Marcellus, Arindam spent nearly a decade in the United States working for Principal Global Investors (PGI).
Most experts see 25 bps cut in fed funds rate. Do you feel so?
Yes, a rate cut is likely on the horizon — the real question is its magnitude. The debate centers around whether it will be 25 or 50 basis points and whether the Fed is already behind the curve. We will know in few days.
Do you see significant volatility in the equity markets in the rest of calendar year due to global factors like US election?
There's definitely a possibility. As you mentioned, events like the US election could trigger a absolute market level volatility or it can trigger a market rotation (from leaders to laggards) as well. Election results can often act as a risk-off event, bringing volatility, as we've seen in the past.
What key macroeconomic factors are currently shaping your investment strategy in developed economies?
We are closely monitoring key leading indicators such as the Manufacturing Purchasing Managers' Index, Consumer Confidence, and the NAHB Homebuilder Sentiment Index. We analyze not only their absolute levels relative to historical trends but also their rate of change. Since the fund's launch, many of these indicators have not been particularly favourable, so we have positioned ourselves in stocks that we believe will perform "relatively" better than most. This strategy has served us well.
Can you discuss a recent investment decision that exemplifies your fund's approach to identifying and capitalizing on emerging trends?
We are seeking companies with long-term tailwinds and strong competitive moats that are temporarily undervalued. Tower REITs fit these criteria well earlier this year. As REITs, their share prices were significantly impacted by rising interest rates, prompting us to begin building a position in the first quarter of this year.
Towers serve as crucial connectivity hubs between mobile devices and core networks, providing a cost-effective solution for wireless coverage. We see no change in the long-term trend of rising wireless data consumption, especially with the ongoing 5G rollout acting as a further tailwind. In the US market, where American Tower (AMT) operates, the barriers to entry are high, and AMT generates over 50 percent of its revenue from this segment. Single-tenant-owned towers offer cost advantages over operator-owned multi-tenant towers, benefiting both carriers and tower operators.
AMT is a highly predictable, recurring cash flow business with significant growth potential both domestically and internationally. Its REIT status allows for high leverage and competitive positioning against private equity. Historically, it has compounded intrinsic value in the low double digits, along with a solid dividend yield, presenting a compelling low-teens total shareholder return. Assuming interest rates have peaked for at least the next few years, we believe American Tower could be a strong investment over the next 3-5 years.
In light of recent global economic uncertainties, how do you balance capital preservation with growth potential in your portfolio?
We typically do not make cash calls at either the firm level or within the Global Compounders fund. Instead, we adjust the portfolio’s tilt between defensive, value, and growth stocks based on our valuation outlook and proprietary style risk tool. For example, our largest position in Berkshire Hathaway for an extended period reflects our defensive stance amid macroeconomic challenges. This approach has proven successful for us.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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