A choppy earnings season and ongoing concerns over political risk have cast a pall over the tech sector in recent months. But encouraging results in individual holdings underline the long-term case for the mobility theme, according to investment specialists at Mellon.
Despite a choppy autos earnings season and a recent sell-off in global technology stocks, Mellon’s mobility strategy continues to witness positive progress in key holdings, according the investment team.
The team noted volatility and uncertainty in the tech sector, in particular, given the ramp-up in US/China trade tensions. This led to some “choppy if not disappointing earnings reports” as companies reduced inventories. “The early pattern was that China is weak in autos and the Huawei ban is having an effect on its US suppliers,” according to the investment team.
Against this background, the mobility strategy nevertheless witnessed positive results from some of its key holdings. In the auto sector, shares in German auto supplier Continental rose on a positive earnings statement. Meanwhile, Korean auto supplier Mobis had a strong quarterly result as its margins improved and revenue growth increased with its key customers Hyundai and Kia both benefiting from new model launches. Mobis is also seeing growth in EV parts sales as well as a better product mix from higher sales for SUVs.
Even so, the investment team warned of lower guidance from companies exposed to the China auto sector, where China passenger vehicle demand has been weaker than forecast.
Meanwhile, the team highlighted positive news from its holdings in Japanese OEM Toyota which has entered new agreements in the last few weeks that continue to show its commitment to mobility. The company has formed partnerships with Chinese battery supplier CATL for EV battery development and has announced it is investing US$600m in China’s leading ride hailing firm, Didi. This is in addition to Toyota already having involvement in ride hailing firms Uber and Grab, so the addition of Didi provides China exposure in this area.
In the technology sector, the investment team continued to see progress in the development and deployment of 5G technologies, a key component of connected vehicles and future autonomous vehicle infrastructure. “There continues to be a large buzz around 5G as it gains momentum,” they note, with China’s largest carriers accelerating deployment. China Mobile, for instance, is expected to deploy 50,000 base stations this year, according to the team, which is higher than initial guidance. “The country could deploy 1,000,000 base stations next year, and if so this could help China become the new world leader in mobile technology,” the team observes.
Finally, while the team has not owned US EV maker Tesla in over a year due to internal execution issues, it notes the Model 3 continues to sell very well in the US and Europe. This model is outselling all of its gas-powered equivalents combined and is the best-selling premium vehicle in the US. “This is great news for the EV category and shows that consumers are ready and able to purchase an attractively designed, well performing EVs,” they explain.
Looking ahead, and regardless of trade tensions between the US/China, the team continues to seek well-positioned, thematic mobility leaders. They believe these companies will offer significant growth potential by capitalizing on the many new trends in mobility expected in the years ahead.
“Although the US/China trade tensions are creating short-term volatility and uncertainty for the mobility sector, they do not dissuade us from the longer-term potential to grow by developing products for new, large, thematically oriented applications,” the team concludes.
The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed.
Objective/Performance Risk: There is no guarantee that the Strategy will achieve its objectives.
Currency Risk: This Strategy invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Strategy.
Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices.
Mobility Innovation Companies Risk: The value of investments in Mobility Innovation Companies may be negatively impacted by changes in regulation and are dependent upon consumer and business acceptance of new technologies. The Fund’s value may be more subject to market fluctuations than if it invested in a broader range of economic sectors.
For Professional Clients only. This is a financial promotion and is not investment advice. Any views and opinions are those of the author, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.
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1 Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.
