Sharing Alpha in it’s July’s report published their rankings of the highly ranked funds on their platform by category. We wanted to bring to you the favourite funds of each category, based on the votes of European fund selectors and advisers within the platform. We have analysed some of the funds showcased in the ranking, and brought to you insights from Robeco, Morgan Stanley, Comgest and Federated Hermes.
The categories selected are Global Large-Cap Growth Equity, US Large-Cap Growth, Europe Large-Cap Growth Equity and Global Emerging Markets Equity.
|Robeco Global Consumer Trends||Global Large-Cap Growth Equity||LU0187079347|
|Lindsell Train Global Equity Fund*||Global Large-Cap Growth Equity||IE00B3NS4D25|
|MS INVF US Growth Fund||US Large-Cap Growth Equity||LU0042381250|
|Comgest Growth Europe||Europe Large-Cap Growth Equity||IE0004766675|
|Federated Hermes Glb Em Mkts||Global Emerging Markets Equity||IE00B3NFBQ59|
*This investment fund is only available in Spain
Source: Sharing Alpha July’s report
Comgest Growth Europe
Alistair Wittet, analyst and portfolio manager
The Comgest Growth Europe fund follows a quality growth approach. Our long-term focus, patience in investing, integration of ESG factors and strict focus on quality and growth stocks irrespective of market environment has proven successful over 3 decades. The fund is currently invested in 39 stocks based on our conviction as long-term stock pickers and 80% exposed to health care, information technology and consumer stocks. The exposure of the fund to long-term sustainable growth companies and themes has not changed over the past decades.
In 2020 the Comgest Growth Europe fund provided downside protection during the months of crisis. The strength of moats in our portfolio played out well. The fund’s focus on dynamically growing quality growth stock led to an absolute performance of 10,7% (EUR ACC retail share class) versus a decline of more than 3% for the MSCI Europe. Since launch of our European flagship strategy 3 decades ago we have never been exposed to banks, commodity and energy companies. The absence from cyclical stocks helped us in 2020. The resilience of our stocks to market downturns based on their quality was the key differentiator for the fund in 2020.
The differentiating factor in 2021 and for the years to come will be the higher growth of our stock picks. And 2021 has again started in a strong manner for our portfolio holdings. Aggregate organic revenue for the first quarter, for example, rose 15% year-over-year and sits 14% above the equivalent quarter of 2019, despite European GDP still tracking below the 2019 level. In our view the cycle will provide a much weaker growth tailwind in the years to come than long term sustainable growth in structurally growing themes such as biopharma, semiconductors, eCommerce, fintech, cloud services and China to which our stock picks are firmly exposed. In our view the litmus test for the rapid and strong post-Covid stock market recovery is to come in the upcoming quarters when the cyclical tailwind is likely to abate to some extent.
In the words of the Accenture CEO, the crisis “has hit a giant fast-forward button to the future for digitalisation”. The dramatic acceleration in the digital economy over the past year means that companies whose business models are built around digital developments are poised for sustainable earnings growth, while those that do not participate in this secular growth trend are likely to slip further and further behind. The strong are getting stronger and the weak are getting weaker.
Let’s have a look at some of our top stock picks. ASML was the strongest contributor to fund performance y-t-d on the back of growing demand from the semiconductor industry. The company delivered an 651% increase in second quarter order intake while also raising its guidance for 2022. ASML is today a monopolist in EUV (extreme ultraviolet lithography) lithography machinery, an unrivalled moat in the semiconductor sector. The crisis has accelerated semiconductor demand, whether it be for electric vehicles, laptop PCs or data centres – all of which support ASML’s long-term prospects. Accenture also benefitted from accelerated digital investments, leading it to raise its full-year guidance to +10-11% sales growth and +17-18% EPS growth. In the luxury space, where brands matter most, LVMH reported a stellar +84% organic growth in the second quarter of 2021, driven by iconic brands such as DIOR, Moet & Chandon or Henessy for example. As with L’Oréal, Louis Vuitton ranks among the elite brands whose market share gains have accelerated during this crisis due to astute use of digital marketing and sales channels. In the healthcare space, Novo Nordisk and Lonza performed very well on the back of strong biopharma fundamentals.
Robeco Global Consumer Trends
Jack Neele, Portfolio Manager and Richard Speetjens, Portfolio Manager, Robeco Global Consumer Trends
Robeco Global Consumer Trends is an actively managed fund that invests in stocks in developed and emerging countries across the world. The selection of these stocks is based on fundamental analysis. The fund’s objective is to achieve a better return than the index. The fund invests in a number of structural growth trends in consumer spending. The first is the “digital transformation of consumption”. The second trend is that of the growth in the “emerging middle class”. The third trend focuses on the increasing importance of “health & wellbeing”.
The fund managers aims to select stocks of the structural winners within these trends.
From a strategy perspective, we remain confidence to our style and focus on the long-term
structural winners in attractive growth trends. We believe that when the global economies
reopen again, many of the trends that accelerated in 2020 will continue unabatedly in 2021.
Even if the style rotation might have some more legs due to vaccine progress, a balance
between Covid winners and companies that can benefit from the reopening trade is important.
If the companies we invest in, will deliver their full earnings potential, the high valuations will
come down quickly as well.
Finally, earnings growth – also for cyclical companies – might be abundant in the recovery year 2021. When we look further out, economic growth might become more scarce again, which bodes well for our portfolio focused on long-term structural trends.
The expected earnings growth for the portfolio has been fairly stable at 15-20% and this is also the outlook for the next years. The portfolio has an PER of ca 35x by the end of April ’21. This is at a premium to the overall market, but of course the long-term earnings of our portfolio is also much higher.
Federated Hermes Global Emerging Markets Fund
Kunjal Gala, Global Emerging Markets Portfolio Manager
Our unique approach. We don’t believe in the concept of Emerging Markets as a homogeneous asset class as not every market classified by MSCI is emerging; a number such as China, Taiwan and Korea are fully emerged, several are truly emerging (India and Indonesia), some are standing still or moving in the reverse direction. We look at each market separately as part of our top-down approach. Emerging markets go through short term events and cycles which effect sentiment and momentum.
We have ignored this noise and our attention is on what is happening on the ground which is more structural in nature. We examine what is transforming people’s lives and focus our research on the companies we believe will emerge as winners from these transformational changes.
We are patient. There are always short-term events which impact markets which we can take advantage to add amazing businesses we couldn’t touch in the past because of elevated valuations.
ESG is at the centre of our objective to manage a future proof portfolio which can deliver a sustainable dollar return over the long term and address the sustainability challenges we face today and, in the future, such as climate change and the loss of biodiversity. We avoid businesses we deem unsustainable which are at risk of causing harm to shareholders, communities, and the environment.
Near term, the effects of the economic recovery and record stimulus are now playing out. This environment should be supportive for risk assets. Although the rising global yields signal improving inflation and economic prospects, it becomes an issue for vulnerable economies. While some investors are worried that higher US rates might derail the EM growth story, the team remain constructive for three key reasons: 1) They believe the Fed will manage the path to higher rates to prevent an unwarranted premature tightening in financial conditions; 2) EM macro-stability is on firmer ground and most countries have managed to keep inflation dynamics and current account deficits in check; 3) The strong demand recovery should provide a more conducive external demand environment for EMs. They retain their preference for Asia and are selective in Latin America. EMEA has maximum vulnerability.
In the medium-term, the outlook remains mixed. Significant risks remain including the emergence of new variants accompanied by periods of lockdown, the potential for fiscal stimulus to disappoint or inflation overshooting expectations. Against the uncertain backdrop Emerging Markets need to pursue structural reforms to ensure sustainable growth. On a sector basis, overall, the team believe 2021 is likely to be good for select Value sectors exposed to structural drivers such as financials (demand for credit, insurance) and materials (low-carbon economy).
Longer-term, they do not see high economic growth rates continuing, so cyclicals remain more of a trade for 2021 than a secular investment. They believe the emergent middle class will continue to spur secular trends, with growing demand for 5G, digitisation, cloud, IoT, electrification, financials, automation and increased spending on health care, logistics, and premium products.
Morgan Stanley Investment Funds – US Growth Fund
Dennis Lynch, Head of Counterpoint Global, Morgan Stanley
MS INVF US Growth Fund, managed by Counterpoint Global, is a U.S. equity fund that seeks to invest in high-quality established and emerging companies with sustainable competitive advantages, strong free-cash-flow yields and favourable returns on invested capital trends. Counterpoint Global believes that value added investment results can be achieved more consistently by making long-term investments in unique companies whose market value can increase significantly over time for underlying fundamental reasons.
The majority of their expected alpha is typically derived from idiosyncratic or non-systematic sources. Their stock selection focuses on finding high quality companies, developing insights around competitive advantage and uniqueness that can make them successful over time, and having the perspective to hold them when there are short-term disruptions, as long as those disruptions do not affect the thesis.
Counterpoint Global offers an active, concentrated approach to stock selection that attempts to earn attractive long-term returns by focusing on companies with sustainable competitive advantages and attractive future period free cash flow yields. Also, we believe one of the team’s differentiating factors is the team’s unique culture and core values. The portfolio is constructed based on fundamental analysis and stock selection. Industry and sector weights are a residual of the stock selection process. The valuation emphasis is on the End Game, which estimates how large a business can be at maturity based on assumptions about the size of its total addressable market and the market share it can potentially capture. Counterpoint Global believes having a market outlook can be an anchor. Their focus is on assessing company prospects over a five-year horizon and owning a portfolio of unique companies whose market value can increase significantly for underlying fundamental reasons.