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July 2013
Important Information:
This webinar contains information specifically intended for institutional clients, asset consultants, advisers, platforms and researchers, who are professional investors and wholesale clients (as defined in the Corporations Act 2001).
I confirm that I am a professional or wholesale investor as defined by the Corporations Act 2001 and wish to proceed.
How would you describe your investment style?
We’re global equity managers, we’re bottom-up stock pickers with a clear quality bias. Where I think we differ somewhat from some of the other quality managers is that we are probably more sensitive to valuations. So we might look at a company and say “This is a fantastic company, it’s a 9 out of 10 but I’m not going to buy it or hold it on 30 times earnings.”
In effect, we work backwards in a way. So, I want to build a portfolio with [return on equity and price to earnings] in mind, how do I then go about picking the stocks to get to that outcome?
Is it a concentrated portfolio?
In our core portfolio we have about 100 names, but what we are looking at doing and have been doing a lot of work on is the idea of offering components of our core portfolio to different investors - it’s this idea of solutions-based investing.
One example would be global small cap, which is an area where prospects have said to us they’ve had a really hard time allocating these global small cap packages because the good managers are full and the other managers are too expensive or the track record is not there.
We can effectively carve out the small cap component of our portfolio, which at the moment would be about 30 to 35 stocks, and offer that as a component. We can also offer a concentrated version of what we do, so our 25 best stocks for example.
Are there other portfolios or is it all subsets of one portfolio?
We run global and then we run Aussie equities. We’ve run Aussie equities for 14 years for US clients. How that works - which is quite unique - is that we have one investment team that does both. We have clear sector responsibilities which cover domestic stocks and global.
So do you take sector views?
There are certain sectors that don’t rank well according to our process. Telecoms and utilities typically don’t rank well at all. So we have very little exposure and it’s mainly because they tend to be very capital intensive industries that are quite competitive. The regulatory risk is typically quite high, so we tend to stay away from those sectors.
In other more cyclical sectors, like basic materials and energy, we have a tendency to be underweight both domestically and globally because we like companies that have got control over their businesses and the prices that they’re selling their goods and services for.
We don’t have a predetermined view in terms of how much we should be allocating to certain sectors, but another example would be financials. We’ve been very, very underweight financials for the last 10 years. And over a 10-year period that’s been a great decision because we’ve missed a lot of the disasters that have happened.
More recently, the financials have rallied and that has worked against us but that’s fine, we’ll stick to our guns. We don’t own something just because it’s in the benchmark; we’ll buy something because we love it.
What is the screening process for a stock to get into the portfolio?
In the domestic space, it has got to be in the ASX 300 but it has got to pass this initial quality filter, which is three consecutive years of return on equity of 15 per cent. If it doesn’t pass that filter, we won’t look at it.
The good thing about our process is that it does tend to keep us away from the bombs that go off, not just steer us in the direction of the companies that we should be looking at. It means that we’re not wasting time on lousy companies.
What is the universe for global stocks?
The universe starts when you take all the MSCI listed companies, which is about 34,000. When you filter for a billion [dollars] in market cap with three consecutive years of return on equity by 15 per cent, you get down to about 830 names at the moment - which is still a lot.
We then use filters for stocks that have high return on capital and decent earnings growth history and a sound balance sheet. That can get you down to a much smaller number pretty quickly.
Perspective is hugely important, we don’t want to be wasting our time on something that’s ranked 815th in the universe when we’re not spending time on something that’s ranked third.
We don’t believe in the idea that we need to have enough analysts to cover every one of those companies; we believe that prioritising is essential.
Where do you see the main opportunities for things that may come into the portfolio?
On a sector level, I think that healthcare and technology are the two stand-out sectors that will continue to make up a large part of the portfolio. That’s where we’re finding the most consistent organic sales growth effectively.
On a regional basis, we have become more positive on Japan and we’ve just started adding more to Japan.
We do think that Japan will continue to be an outperformer over the next two or three years, especially in the context of the US market having done extremely well over the past two years.
Then looking at Europe, what we see in Europe is there’s a huge divergence of the quality stocks and poor quality stocks.
The high quality stocks have become quite over valued and there are still quite clear economic problems in Europe, so we think that it’s too early to get too excited about them.
How would you describe your investment style?
We’re global equity managers, we’re bottom-up stock pickers with a clear quality bias. Where I think we differ somewhat from some of the other quality managers is that we are probably more sensitive to valuations. So we might look at a company and say “This is a fantastic company, it’s a 9 out of 10 but I’m not going to buy it or hold it on 30 times earnings.”
In effect, we work backwards in a way. So, I want to build a portfolio with [return on equity and price to earnings] in mind, how do I then go about picking the stocks to get to that outcome?
Is it a concentrated portfolio?
In our core portfolio we have about 100 names, but what we are looking at doing and have been doing a lot of work on is the idea of offering components of our core portfolio to different investors - it’s this idea of solutions-based investing.
One example would be global small cap, which is an area where prospects have said to us they’ve had a really hard time allocating these global small cap packages because the good managers are full and the other managers are too expensive or the track record is not there.
We can effectively carve out the small cap component of our portfolio, which at the moment would be about 30 to 35 stocks, and offer that as a component. We can also offer a concentrated version of what we do, so our 25 best stocks for example.
Are there other portfolios or is it all subsets of one portfolio?
We run global and then we run Aussie equities. We’ve run Aussie equities for 14 years for US clients. How that works - which is quite unique - is that we have one investment team that does both. We have clear sector responsibilities which cover domestic stocks and global.
So do you take sector views?
There are certain sectors that don’t rank well according to our process. Telecoms and utilities typically don’t rank well at all. So we have very little exposure and it’s mainly because they tend to be very capital intensive industries that are quite competitive. The regulatory risk is typically quite high, so we tend to stay away from those sectors.
In other more cyclical sectors, like basic materials and energy, we have a tendency to be underweight both domestically and globally because we like companies that have got control over their businesses and the prices that they’re selling their goods and services for.
We don’t have a predetermined view in terms of how much we should be allocating to certain sectors, but another example would be financials. We’ve been very, very underweight financials for the last 10 years. And over a 10-year period that’s been a great decision because we’ve missed a lot of the disasters that have happened.
More recently, the financials have rallied and that has worked against us but that’s fine, we’ll stick to our guns. We don’t own something just because it’s in the benchmark; we’ll buy something because we love it.
What is the screening process for a stock to get into the portfolio?
In the domestic space, it has got to be in the ASX 300 but it has got to pass this initial quality filter, which is three consecutive years of return on equity of 15 per cent. If it doesn’t pass that filter, we won’t look at it.
The good thing about our process is that it does tend to keep us away from the bombs that go off, not just steer us in the direction of the companies that we should be looking at. It means that we’re not wasting time on lousy companies.
What is the universe for global stocks?
The universe starts when you take all the MSCI listed companies, which is about 34,000. When you filter for a billion [dollars] in market cap with three consecutive years of return on equity by 15 per cent, you get down to about 830 names at the moment - which is still a lot.
We then use filters for stocks that have high return on capital and decent earnings growth history and a sound balance sheet. That can get you down to a much smaller number pretty quickly.
Perspective is hugely important, we don’t want to be wasting our time on something that’s ranked 815th in the universe when we’re not spending time on something that’s ranked third.
We don’t believe in the idea that we need to have enough analysts to cover every one of those companies; we believe that prioritising is essential.
Where do you see the main opportunities for things that may come into the portfolio?
On a sector level, I think that healthcare and technology are the two stand-out sectors that will continue to make up a large part of the portfolio. That’s where we’re finding the most consistent organic sales growth effectively.
On a regional basis, we have become more positive on Japan and we’ve just started adding more to Japan.
We do think that Japan will continue to be an outperformer over the next two or three years, especially in the context of the US market having done extremely well over the past two years.
Then looking at Europe, what we see in Europe is there’s a huge divergence of the quality stocks and poor quality stocks.
The high quality stocks have become quite over valued and there are still quite clear economic problems in Europe, so we think that it’s too early to get too excited about them.
