'Collecting information is not the same as connecting information': A CIO who oversees $6 billion explains how she discovers hidden opportunities, and shares her 3 best trades for the future
- Investing in ideas that no one else is willing to touch is the key to unlocking superior market returns, according to Rupal Bhansali, the chief investment officer of international and global equities at Ariel Investments.
- In an exclusive interview with Business Insider, she detailed specific ideas that have supported her performance - and which she recommends for investors who are hunting for under-the-radar themes.
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In today's day and age, market information is omnipresent.
Stock quotes, statistics, and analysis constantly bombard investors from all angles on any given day, making it difficult to discern a viable signal from useless hearsay.
But not all are vulnerable to the cacophony - and one chief investment officer has built her career on being able to see the forest for the trees.
That person is Rupal Bhansali, the CIO of international and global equities at Ariel Investments, where she manages global portfolios with over $6 billion in assets. She thinks information that everyone has isn't worth having.
"Collecting information is not a source of alpha, connecting information is a source of alpha," Bhansali told Business Insider in an exclusive interview. "If you can have a correct, non-consensus point of view there's a lot of money to be made, without taking a lot of risk."
This is a recurring theme in her new book, "Non-Consensus Investing: Being Right When Everyone Else Is Wrong." In her view, connecting the dots and going against the grain will lead to the biggest windfalls.
Bhansali provides a few examples of non-consensus ideas that have been flying under-the-radar to investors who aren't looking deeper than the surface.
1. Consumer staples are risky and not as defensive as you think
Her target is rather mundane at first: tires. But she uses them to exemplify her thesis that traditional consumer staple stocks - loved for their defensive qualities during economic recessions - are overvalued and overrated.
The sector has bested all others on the S&P 500 during this bull market and gained over 600% since March 2009. In her view, the good news is mostly priced in while the bad news is not.
Instead of staples, she advises that investors find consumer discretionary stocks that are actually defensive in nature. And she singles out the French tire maker Michelin as such a company.
"There's nothing discretionary about replacing your tires," she said. "You've got to do them every couple of years, every couple of miles."
She adds that the genius of tires is they are much harder to counterfeit than designer handbags, for example. This gives companies like Michelin considerable pricing power, especially for the larger SUVs and trucks that consumers increasingly love.
2. Telecommunication stocks are the new staples
The defensive nature of tire manufacturers boils down to our dependency on them to commute, whether by electric vehicles, gasoline-fueled cars, public transit, and even aircrafts.
And if there is anything that is as indispensable today as commuting, it's the internet.
That's where her recommendation for telecom stocks comes into play. She points out that people need their connectivity to the world - and will pay for it somehow - regardless of whether there's a recession or not.
She also finds telecom stocks attractive for the plurality of companies that have net-cash balance sheets and high dividend yields.
Her top pick is China Mobile, "one of the cheapest stocks in the world" with a high cash-to-market-cap ratio and a 4% dividend yield. She also likes Verizon and the Japanese cellphone operator NTT Docomo.
3. Invest in cash-rich companies
"The biggest risk in the market is excessive corporate leverage," Bhansali said.
She decries companies that have liberally acquired debt just because the cost of borrowing has been historically cheap. Their binge, combined with massive share buybacks, has inflated valuations and boosted earnings without creating any real value. And it is only a matter of time before investors reprice these companies.
"For years, all that people paid attention to in GE's stock was the earnings risk," Bhansali said.
She added, "What finally got the stock to collapse one day was people waking up to balance sheet risk. That's what's going to happen to the market at large."