Fund managers gird for long trade war after FedEx slide

FedEx business touches several industries across the globe. (AFP)
Updated 22 September 2019

Fund managers gird for long trade war after FedEx slide

  • Shares of the shipping company tumbled 13% after it said it planned to cut costs

NEW YORK: A profit warning and muted outlook from package delivery company FedEx Corp. is prompting some high-profile fund managers to prepare for the trade war between the US and China to last longer than many had originally anticipated.

Shares of the shipping company, whose business is often seen as a proxy for growth in the global economy, tumbled 13 percent Wednesday, a day after it said it planned to ground some planes and cut costs due to the effects of the trade war between the world’s two largest economies.

“We were hopeful of a trade deal and some sort of return to normalcy and that has not taken place,” FedEx’s CEO, Frederick Smith, said on its earnings call.

Companies ranging from parts supplier O’Reilly Automotive to network gear maker Juniper Networks have said the trade war is weighing on their earnings. Yet investors have focused more on FedEx because the nature of its business touches several industries across the globe, including consumer spending.

An extended trade war could take the wind out of the sails of the rally in the S&P 500 benchmark index, which has advanced in line with expectations for an imminent breakthrough in the trade war. High-level talks between the two countries are expected to resume again in October. The conflict between the two countries could take a decade to resolve, White House economic adviser Larry Kudlow warned on Sept. 6.

As a result, fund managers are moving away from US industrials and technology companies that may be most affected by higher tariffs and instead are looking to pick up some out-of-favor companies and assets that offer long-term opportunities despite the trade war.

“It’s obvious that China will try to drag this out as long as it can and hope it disappears after the (2020 presidential) election,” said Brian Yacktman, whose YCG Enhanced Fund is up nearly 31 percent for the year to date.

Yacktman is moving more into the shares of European luxury goods makers such as Kering SA, whose brands include Gucci and Botegga Veneta, that have pricing power but have fallen on concerns about a slowdown in the Chinese economy. 

Shares of Kering are up 12.4 percent for the year to date, including a 10 percent drop over the last three months.

“These are companies that can just pass tariffs on because people want to buy the status symbol,” he said.

Emily Roland, co-chief investment strategist at John Hancock Investment Management, said her firm has been increasing its “measures of protection” against an economic downturn caused in part by an escalating trade war. Despite a 20.1 percent gain in the sector this year, she said she still sees opportunities in utilities companies due in part to their above-average dividend yields and growth potential.

“Rather than reacting and getting whipsawed by the sudden shifts in sentiment, we believe that investors can create diversified portfolios that seek to minimize downside risks from the trade war, however long it may last,” she said.

Not all fund managers are convinced the trade war is here to stay. “We still think one way or another Trump will end it before the election,” said Lamar Villere, a portfolio manager at New Orleans-based Villere & Co.

As a result, he has been moving more assets into sectors such as semiconductors, an industry which will be included in $50 billion worth of goods that will be subject to 30 percent tariffs starting Oct. 1.

“The market is giving you opportunities because we think that this is more of a blip than anything else,” he said.

Emmanuel Roman, CEO at bond giant Pimco, said Thursday at the CNBC Institutional Investor Delivering Alpha Conference that he is seeing opportunities in emerging market bonds due to the pessimism from the trade war. “Obviously the big elephant in the room is the trade war with China and how it will resolve itself,” he said.

Cirque du Soleil walks a tightrope through pandemic

Updated 06 June 2020

Cirque du Soleil walks a tightrope through pandemic

  • Suitors wage backstage battle to rescue debt-stricken Canadian circus icon
  • Among the potential bidders is former fire eater Guy Laliberte, who fouded the acrobatic troupe in 1984

MONTREAL: Its shows canceled due to the COVID-19 pandemic, an already heavily indebted Cirque du Soleil’s fight for survival has invited an intense backstage battle to try to save the Canadian cultural icon.

High on a list of potential suitors is former fire eater Guy Laliberte, who founded the acrobatic troupe in 1984 but later sold it.

“Its revival will have to be done at the right price. And not at all costs,” said the 60-year-old, determined not to see his creation sold to private interests.

The billionaire clown said after “careful consideration,” he decided “with a great team” to pursue a bid, but offered no details.

Under his leadership, the Cirque had set up big tops in more than 300 cities around the world, delighting audiences with contemporary circus acts set to music but without the usual trappings of lions, elephants and bears.

Then the pandemic hit, forcing the company in March to cancel 44 shows worldwide, from Las Vegas to Tel Aviv, Moscow to Melbourne, and lay off 4,679 acrobats and technicians, or 95 percent of its workforce.

Hurtling toward bankruptcy, the global entertainment giant and pride of Canada commissioned a bank in early May to examine its options, including a possible sale.

Meanwhile, shareholders ponied up $50 million in bridge financing for its “short-term liquidity needs.”

Laliberte, the first clown to rocket to the International Space Station in 2009, ceded control of the Cirque for $1 billion in 2015.

It has since fallen into the hands of American investment firm TPG Capital (55 percent stake) and China’s Fosun (25 percent), which also owns Club Med and Thomas Cook travel. The Caisse de depot et placement du Quebec (CDPQ) retains the last 20 percent.

The institutional investor, which manages public pension plans and insurance programs in Quebec, bought Laliberte’s last remaining 10 percent stake in the business in February, just before the pandemic.

Since 2015, the Cirque has embarked on costly acquisitions and renovations of permanent performance halls, while its creative spirit waned, according to critics in the Quebec press.

Meanwhile, it piled on more than $1 billion in debt.

Fearing that the Cirque would be “sold to foreign interests,” the Quebec government recently offered it a conditional loan of $200 million to help relaunch its shows as restrictions on large gatherings start to be eased worldwide.

But the agreement in principle is conditional on the Cirque headquarters remaining in Montreal and the province being allowed to buy US and Chinese stakes in the company at an unspecified time in the future, “at market value” and with “probably a local partner,” said Quebec Minister of the Economy Pierre Fitzgibbon.

“The state does not want to operate the circus, but the circus is too important to Quebec (to leave it to foreigners),” he said.

In addition to Laliberte, other prospective buyers include Quebecor, the telecoms and media giant of tycoon Pierre Karl Peladeau, whose opening lowball bid was outright rejected.

“It is essentially the value and reputation of the brand” that has piqued interest in the company, says Michel Magnan, corporate governance chair at Concordia University in Montreal.

But “as long as there are restrictions on gatherings of people, the future is not very rosy” for the Cirque, he said.

Several challenges await, according to Magnan.

“There were a lot of people working in all of these shows. Where are they now? What are they doing? How are they doing? In what shape are they, what state of mind?” he said.

“The more time passes, the more this expertise risks evaporating.”

Small consolation: The Cirque resumed its performances on Wednesday in Hangzhou, China, five months after a coronavirus outbreak in the city.