e-fundresearch: What is your global macro outlook for 2012?Our fund’s investment process is not driven by events, specific periods of time or the macro outlook. Our focus and strategy of investing in the highest quality stocks, with the ability to compound across cycles, is the best strategy for us in the long-term and short term events will not change this.
e-fundresearch: Which are the most important factors currently when you assess global equity markets?We are bottom up investors and as such do not focus on markets, sectors or regions. With regard to our strategy, we have a range of stringent criteria by which we assess both the quality of the underlying businesses and the valuation of the companies we invest in. On the quality of the underlying business, our criteria are based on financial metrics that we believe are associated with a strong franchise business, such as sustainable high return on capital employed, high gross margin, low capital intensity, and high Free Cash Flow generation. With regards to the valuation, we apply a strict, absolute value criterion to avoid over-paying for quality. We have used the same investment criteria consistently since the inception of the strategy in 1996, regardless of market conditions.
e-fundresearch: Which regions and/or sectors are currently overweight or underweight in global equity funds (ISIN: LU0119620416)? What are the reasons for it?
The portfolio has always had a bias towards consumer staples as they are the companies that exhibit the criteria described in questions 1 and 2. Our companies all have sustainable high returns on capital, and are defensive in adverse economic circumstances. Additionally, though generally domiciled in developed markets, our portfolio of stocks have strong global sales and they benefit from a good exposure to emerging markets (EM). So much so that close to 30% of the aggregate sales of the companies in our fund are in EM.
The criteria we employ above generally rules out banks, insurance companies, utilities, energy companies, mining companies and most other capital intensive sectors, like car manufacturers and engineering companies.
e-fundresearch: Which are the big investment themes for 2012? Where do you see opportunities and where do you see risks?
As highlighted, we invest in a special type of company exhibiting a very strict list of criteria which offer a stability away from investing over the short term.
e-fundresearch: Please comment on the performance and risk parameters of your fund in the current year as well as over the past 3 and 5 years.
We are pleased with our 2011 performance, however as very long term investors, we prefer to be measured over longer time periods, such as 3, 5 and 10 years. Our focus on very high quality has served us well this year, but has also delivered consistent returns since the strategy´s inception in 1996. Our long-term strategy of investing in the highest quality stocks, with the ability to compound across cycles, has worked as expected to provide strong performance, measured over almost any time period.
We view risk in absolute, rather than relative terms - we don’t pay any attention to benchmarks or indices when constructing the portfolio, instead we have an overriding goal of not losing money for our clients. A key metric for us is that our strategy demonstrates lower volatility than the benchmark in any kind of absolute way.