- Mark Baribeau — the head of global equity at Jennison Associates, where he oversees roughly $3 billion — has found success investing in some of the market’s most high-profile tech stocks.
- The funds managed by Baribeau include the PGIM Jennison Global Opportunities Fund ($2.4 billion), the PGIM Jennison International Fund ($571 million), and the PGIM Jennison Emerging Markets Equity Opportunities Fund ($19 million).
- His portfolio includes the likes of Amazon, Facebook, and Netflix — but he’s also keenly focused on the new generation of tech stocks poised to lead the next round of industry disruption.
- He spoke with Business Insider about that “third wave,” and also broke down his views on the global trade war that’s escalated in recent months.
Following is a transcript of the video.
Joe Ciolli: Mark Baribeau is the head of global equity at Jennison Associates, where he manages a portfolio packed with popular tech names like Amazon, Facebook and Netflix. But he doesn’t just deal with mega-cap companies — he’s focused on so-called third wave tech firms. He says they’re disrupting the industry. Mark, just to start, can you define what a third way tech company is? What are some examples?
Mark Baribeau: Well sure, you have this big infrastructure of technology and internet spending out there, and of course, the mobile internets, the biggest of them all, and it’s pretty much global. So lots of companies with new applications are coming along that are creating better consumer experiences, solving for problems, uniquely in different markets.
An example would be Shopify in retail optimization or operating system, enabling young entrepreneurs to get online, start selling their cool products, and avoid the big companies like Amazon, which are going to take most of the economics. Brands like Allbirds, for example are very, very successful using the Shopify system to get up and running and sell effectively online. So it really helps entrepreneurs.
Another example might be Mercado Libre in Latin America, the e-commerce leader there. They’re taking advantage of the lack of payments infrastructure to create their own digital payments procedure or use case, Mercado Pago, again accelerating the deployment of e-commerce and making it easier for consumers to buy online and now, offline.
What started off as an e-commerce company, mid-cap growth company, is now a dominate digital payments provider in Latin America. So those are a couple of examples of very exciting opportunities that are built off this big, mobile internet infrastructure.
Ciolli: So it sounds like they make their hay by taking steps out of the process. They sort of consolidate different steps that may go into selling things online. Is that really their big point differentiation and are there other?
Baribeau: Yes, their big point of differentiation in both cases, is they’re solving for big problems that companies have, entrepreneurs have, consumers have and matching those solutions to make it easier to both sell online or buy online — avoiding the big infrastructure companies like Amazon or Google as they attempt to do this. It really is unique, It’s a great value proposition, and both are growing very quickly as a result.
Ciolli: Are there any drawbacks at all? It seems like the tech space is always rapidly developing. Is there fear that these companies could be obsolete just as quickly as they were players on the scene?
Baribeau: Yes, it’s always a big concern. You have to make sure they have the competitive advantages to withstand lots of competition, which both companies that I gave an example of have. But as long as those competitive advantages continue to grow, and more and more people use their services, they actually get a network effect, which makes it very difficult, actually, for others to come in and try to compete away that business.
So scale’s important, the success of the technology’s important, the vision and focus of management — those are all very critical to establish in that kind of success.
Ciolli: It sounds like there will be a handful of winners, sort of like there was with second wave tech, right?
Baribeau: Always a handful of winners. Always a big competitive battle, but you’ll only want to play the leader as they emerge as the winner.
Ciolli: I wanted to shift things over to the elephant in the room when you talk about tech stocks, which is the trade war. A lot the biggest companies — particularly Apple — are very exposed to China. They’re right now, sitting near record highs. Apple just hit a record high. What’s going on there and why have we not seen more of the air come out of the tech space amid all this China’s turmoil?
Baribeau: That’s a great question. I think the big thing is, of course, technology’s not really wrapped up in the trade war, directly, as much as it could be, because China’s a closed system. So most of their internet technologies are homegrown. Apple does sell a lot in China, but Apple also manufactures in China, so it’s awfully hard to put a tariff on something that’s actually built in your home country. So far, they’ve been unscathed.
If the trade war were to escalate further, two things are going to happen. One, you’re gonna continue to dampen business confidence globally, which has already happened. Which is already, we think, beginning to leak into technology companies that sell around the world. Never mind with China, demand may be slowing down.
And the second thing that could happen is, China could start to retaliate by discouraging purchases of US brands. That would be devastating. So far, that hasn’t happened, but it’s why this trade war really has to back off before it does more damage.
Ciolli: Yeah, and right now, I think we’re at a place where we have this partial deal that was recently announced. But I think there’s some debate around how much progress was actually made. What’s the best-case scenario, and what’s really the worst-case scenario for tech stocks with the trade war, depending on what happens?
Baribeau: The best case scenario is quote-unquote “the partial deal,” which is not the deal at all. It’s just both parties agreeing that going toe-to-toe is not a good idea. The worst case scenario is, we go to escalation and the big tariffs get put on in December, which were threatened to be put on, that’s gonna spell a lot of trouble for the economy, globally, in 2020. Let’s hope we don’t get there.
Ciolli: If that does happen, say we’re pushing through recession at some point because of either the trade war or just mounting forces, what’s the best way to trade around that? Is it the third wave of tech? Is that an area that you should pile into or are there other alternatives that you recommend?
Baribeau: Everything will get hit in a recession, there’s nothing is unscathed.
Ciolli: There’s nowhere safe.
Baribeau: There’s nowhere safe. If it were to happen, you want to go with the leaders once they have corrected because they’re the ones that are gonna come out the fastest.
Ciolli: That makes sense and also, one other thing we have to mention when we talk about tech is this specter of antitrust and regulatory pressure. We’ve seen that a lot in Europe. There’s some inquiries being initiated in the US, but it’s kind of slow-moving. Is that something that’s on your radar when you look at the tech space?
Baribeau: Absolutely. For the large-cap internet giants in the US, we think it’s already had an impact on their valuation because fundamentals have been very strong, yet the stocks have kind of stalled out. And I think that valuation compression will remain as long as that regulatory overhang is there.
So far it hasn’t really impacted, as it shouldn’t, any fundamentals. But it does impact valuation, but those companies aren’t particularly expensive. They’re, in fact, some of the most attractive in the market and, obviously, that regulatory overhang is one of those reasons.