The ultimate contrarian play? Why this fund manager is betting on airlines and banks, not AI

Whilst plenty of money has been made in tech stocks over the last 12 months, the recent DeepSeek-inspired selloff is a timely reminder that there’s more than one way to make money in markets and having a balanced portfolio remains important.

Jim Clarke, Director of Fundamental Equity Research and Portfolio Manager for the Brandywine Global Opportunity Equities Fund, hunts for opportunities across the globe with a value tilt, looking to buy companies when they are trading for significantly less than they are worth.

Clarke recently spoke with Livewire to discuss the macroeconomic outlook, investment convictions, and portfolio strategy – including why the portfolio has been underweight tech.

A shifting macro environment

Brandywine Global’s macro perspective underscores a “soft landing” in the US, where core inflation is nearing the Federal Reserve's 2% target, consumer spending remains robust, and GDP growth hovers between 2% and 3%. However, Clarke emphasised a critical concern: the “enormous valuation premium” in US equities.

“In November 2024, following the U.S. election results, the stock market surged another 7% while the rest of the world remained flat – despite rising interest rates. This looks like petrol thrown on a fire to us,” said Clarke.

As a result, the focus of the portfolio has shifted to regions with lower valuations and modest expectations – with the Eurozone and China at the top of the list for Brandywine Global.

According to Clarke, the Eurozone faces a manufacturing slowdown but is likely to benefit from rate cuts by major central banks in 2025. Meanwhile, China’s pivot toward demand-side stimulus presents potential upside, not just domestically but across Asia and commodity-producing economies.

Additionally, a weaker US dollar is expected to create a favourable environment for emerging market currencies and commodity exporters in the G10.

Portfolio positioning

As noted above, the portfolio has been underweight tech of late, with Clarke pointing out that “the strategy’s significant underweight in technology today reflects our value-oriented investment philosophy”.

“We have been investing for a long time and have seen many different environments which means we can recognise extremes. Recent returns to investors are certainly very much tech-related, but we invest for future returns, not past returns”, said Clarke.

So, where has Clarke been hunting for opportunities? Brandywine Global’s largest sector allocations are in financials and consumer discretionary.

Of the former, the portfolio has “significant bank exposure diversified across three continents because we believe banks could be among the largest beneficiaries if we achieve a global soft-landing scenario”, said Clarke, adding that “We have been particularly encouraged by our European banks, which are two of the cheapest stocks we own”.

As for the overweight in consumer discretionary, Clarke highlights that this overweight has been driven by specific opportunities, as opposed to “any specific thoughts on the sector as a whole”.

Clarke adds that the three main concentrations are as follows:

1. British Homebuilders: These businesses, trading at cyclical troughs, could benefit from future interest rate cuts.

2. Automotive Stocks: Valued at just 6% of the portfolio, the auto sector is deeply out of favour but offers attractive entry points.

3. Alibaba: As the dominant Chinese internet retailer, Alibaba (NYSE: BABA) trades at a single-digit P/E multiple, showcasing what Brandywine Global views as significant upside potential.

Scouring the world

With valuations full in the US, even beyond tech, Brandywine Global has been finding compelling valuations in Europe, the portfolio’s biggest geographical overweight.

According to Clarke, solid companies with similar revenue exposures to comparative US companies sell at significant discounts.

One example is the multinational bank BNP Paribas (EPA: BNP), which Clarke described as “the JP Morgan of Europe”.

He believes it to be the highest quality bank, citing the fact that whilst it has a competitive double-digit return on equity (ROE), “the stock trades at half the valuation of its US equivalents on a P/E or P/B basis. Throw in an attractive 7% dividend yield, and the story gets even more compelling for Clarke.

The other area of focus in the portfolio is China, where Clarke highlights Baidu (NASDAQ: BIDU) as one of the “cheapest names in the portfolio despite being high quality, with a net cash balance sheet”.

At current prices, “cash makes up two-thirds of Baidu’s market capitalisation”, adds Clarke, making the stock a strong candidate for significant appreciation in his eyes.

Stock specific

Whilst we all like to know which stocks fund managers are buying, it’s always useful to understand what they have been selling and why.

In the case of the Brandywine Global Opportunistic Equity Fund, a recent sale was Micron Technology (NASDAQ: MU) – the American producer of computer memory and data storage.

The position was divested in 2024, after being purchased “at the trough of its cycle when it was losing a lot of money", said Clarke.

“In the first half of 2024, Micron became very much an “AI” play and the stock more than doubled. We took that as an opportunity to redeploy capital into much cheaper opportunities,” said Clarke.

Whilst this is an example of a stock that played out as expected, Clarke also highlighted that there are times when the thesis gets compromised, which leads to a position being exited.

As for some high-conviction names for the next five years, Clarke is focusing on the skies. He points out that there simply haven’t been enough planes built in recent years, with Boeing not able to produce nearly enough planes to meet demand, and Airbus, while not experiencing Boeing’s chronic issues, unable to produce at pre-COVID levels.

This means two things. Firstly, that 2500 planes should have been produced in the last five years that simply don’t exist, and secondly, that the owners of aircraft are therefore in the prime position.

“Thinking about supply and demand and who benefits from a tight market for aircraft, we think the answer is owners of aircraft”, says Clarke.

“They are starting to see strong pricing power that we believe will persist for years, meaning higher earnings and higher return on capital”.

The portfolio owns American-Irish aviation leasing company Aercap Holdings (NYSE: AER), which is the largest aeroplane lessor and, in fact, the largest owner of commercial aircraft in the world, according to Clarke.

As well as Aercap, the portfolio owns three high-quality airlines that are regionally diversified – with Australia’s Qantas (ASX: QAN) getting a nod, alongside the US’ Delta Air Lines (NYSE: DAL), and Panamanian airline, Copa (NYSE: CPA).

The final word

Brandywine Global’s disciplined approach to value investing, emphasis on low expectations, and focus on overlooked markets highlight its commitment to long-term, risk-adjusted returns.

From underweighting overhyped sectors like technology to embracing opportunities in Europe, China, and financials, the strategy is rooted in deep research and contrarian thinking.

“We want to invest in places where expectations can be exceeded, not where they invite disappointment”, said Clarke. 

Managed Fund

Brandywine Global Opportunistic Equity Fund

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