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'Market has the tendency to look at near-term effects, but not the long-term': Portfolio Manager

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Yahoo Finance’s Akiko Fujita and Zack Guzman discuss today’s market action with Chris Mack, Portfolio Manager at Harding Loevner’s Global Equity Fund.

Video Transcript

AKIKO FUJITA: Let's begin this hour though with the big moves we are seeing in the markets. And it is really about the tech rebound. Looking at some of the biggest movers on the Dow right now, Intel, Apple, Microsoft, Salesforce all up well over 2% right now.

Want to bring in Chris Mack. He's a portfolio manager at Harding Loevner's Global Equity Fund. And Chris, the big question here is, is this the end of the tech rout? Is the market taking a pause? Is there more pain to come?

CHRIS MACK: Yeah, that's a good question. It's challenging to always time the bottom, right? If anyone could do that, that would be ideal. But I think you have to be prepared to look through the long term. And we're focused. When we invest in technology companies, we're looking at an average holding period of three, four, five-plus years. We're really looking for companies with a long duration of growth.

And so in this context, people get excited about short-term developments, chasing, fear of missing out. But when you get a pullback like this, you have the opportunity to buy for the longer term in durable growth companies. And over the longer-term view, I think this is certainly a buying opportunity.

ZACK GUZMAN: Chris, if it is a buying opportunity, I mean, where do you think we should be putting new capital to work here? Because we've been talking about these rate jitters and what's happening there. It seems like that could definitely come back pretty quickly if we see the 10-year rise again. So I mean, when you're looking at it relative risk/reward between some of the cyclical names that we've been watching in tech, what are you liking right now?

CHRIS MACK: Yeah, when you think about duration, one of the areas I want to highlight is semiconductors, which is interesting because typically, this is an area considered to be more cyclical. And certainly, you have some cyclical drivers here. And we know about the shortage in auto semis and so on. But there's an opportunity here to benefit from a longer-term trend, which is designing custom chips.

And that's really happening for two main reasons. It's becoming harder and harder to produce chips at scale at smaller and smaller transistor sizes in addition to artificial intelligence algorithms investing and basically mining data to come up with insights. And those two trends are really what's powering a company like Apple to decide to develop their own chip and the CPU that they launched at the end of last year.

And this has just been a continuation of investment by what they call system companies, not the merchant silicon company like a Qualcomm, but Apple, Microsoft investing in their own artificial intelligence chips and so on. That customization presents an opportunity for a software business called Synopsis that is a leader in electronic design automation software, which essentially is a fancy word for saying software tools to help design chips. And it's only becoming harder.

So increased complexity, Synopsis is a company that should benefit from it. So it gives you the best of both worlds, an exposure to semiconductor spending and R&D that can be cyclical but yet a longer-term durable trend.

AKIKO FUJITA: Chris, we're expecting the House to pass that $1.9 trillion COVID relief package this week. With the president signing it, certainly would provide significant relief to millions of Americans. How much of that has already been baked in though, you think, to the market? Or could we potentially see a move higher on the back of the president signing it?

CHRIS MACK: I think you always have to be careful, wondering what's priced in in something like this. I think the market has a tendency to look at the near-term effects but not the longer-term effects. And so when it comes to something for infrastructure, getting back to your opening comment about is the selloff in tech done, I think you've been having this rotation where companies that have been languishing because of the lack of infrastructure spending and some of the other things in this bill--

There's now, these companies, they have higher growth prospects. So tech in particular stood out last year for being durable in a very uncertain environment, sustaining growth. And people gravitated toward it. That was worth a premium. As it starts to unfold, you see that premium warranted for technology shares changing a bit, as people appreciate the fact that some of these less-expensive-looking stocks have got greater growth prospects in the short term.

The question becomes, what really has that duration on a longer term? And technology still has those durable trends, whether it's artificial intelligence, data and so forth, software as a service, those still are in play. With the pandemic set in motion as far as automation and digitalization of processes, that will continue. And that's just a way of having more efficiency, which maybe will serve-- everyone talks about interest rates. That may serve as a tempering effect on interest rates going forward.

AKIKO FUJITA: Some good takeaways there. Chris Mack, portfolio manager at Harding Loevner's Global Equity Fund. It's good to talk to you today.