(Bloomberg) -- Buoyant equity markets have Ariel Investments President Mellody Hobson getting a little less aggressive with her cash holdings, preparing for any pullback in stocks creating fresh buying opportunities.
Chicago-based Ariel, which managed $11.8 billion as of June 30, currently weights cash at about 7 percent in its global portfolios, versus its usual target of less than 5 percent, Hobson said in an interview at Bloomberg's Hong Kong bureau.
It's “just to have the powder dry in the event of any kind of pullback in the markets,” she said. “We don't necessarily see a correction coming, but anything is possible. If there is a correction we think the fundamentals are very sound -- we'd be a buyer in this environment.”
Investors are sanguine about potential threats to the rally in equities, evidenced by the lack of a wider retreat on the tensions between North Korea and the U.S., Hobson said. Global stocks remain near the record highs reached in early August, as low volatility and a strong world economic outlook encourage buying. They have repeatedly bounced back after declines triggered by geopolitical concerns over North Korea, which have spiked again with that nation's sixth nuclear test. Asian equities retreated Monday after the Sunday test, which was the most powerful yet.
“The market telegraphs what it believes to be the future and if you see how it's behaving right now it suggests a belief rational heads will prevail,” said Hobson, who spoke on Friday, before North Korea's nuclear test. Appearing on Bloomberg Television in Sydney today, she added: “The long-term story is very positive. My belief is that this will work itself out and I am never a believer in overreacting to any news.”
Influential Woman
A bottom-up investor who focuses on fundamentals over wider themes or geography, Hobson, 48, is also known for championing diversity in the boardroom. A director of Estee Lauder Companies Inc. and Starbucks Corp., she was named one of the world's 100 most influential people by Time magazine in 2015. In the same year, Vanity Fair quoted Sheryl Sandberg, chief operating officer of Facebook Inc., as crediting Hobson with inspiring her to write her bestselling book about women in the workplace, “Lean In.”
Speaking on Friday, Hobson said diversity makes firms more efficient. “There's so much data that shows publicly traded companies that have more women on the board have outperformed those with less or none.”
Right now, Hobson's firm prefers health care stocks, with drugmakers Gilead Sciences Inc., GlaxoSmithKline Plc, Roche Holding AG and Johnson & Johnson among the top 10 holdings in its flagship $2.6 billion Ariel Global Separate Account.
The global portfolio holds two Chinese companies: telecommunications giant China Mobile Ltd. and Baidu Inc., owner of the nation's largest internet search engine. Ariel recently increased its stake in China Mobile, Hobson said.
“The opportunity to lower prices and still remain competitive is an advantage,” she said of China Mobile. “One would think that the company is less profitable, but when you get that scale that comes with it the profitability stays intact.”
China Mobile reported earnings in line with estimates last month, but its shares have largely missed out on the Asia-leading rally in Hong Kong, rising 0.9 percent in 2017 versus the Hang Seng Index's 27 percent climb.
In Baidu, Hobson sees a company that offers more than just exposure to the Chinese search market. The company, whose American depositary receipts have risen 39 percent this year, is a “one-stop shop” for investors given the range of services it provides, she said.
To contact the reporter on this story: Eric Lam in Hong Kong at elam87@bloomberg.net.
To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Colin Simpson
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