Are Global Equity funds a good investment option? As every month, we take a look at Sharing Alpha’s report on the funds preferred by European advisors and fund managers. This time, we have analysed the favourite global equity funds including Baillie Gifford Global Discovery Fund, Thornbridge Nutshell Global Equity and Robeco Global Consumer Trends.
Having global equity funds is a must in a diversified portfolio, as it allows us to invest in several geographical areas and all economic sectors at the same time. Baillie Gifford, Nutshell AM and Robeco send us their perspectives.
Robeco Global Consumer Trends
Jack Neele and Richard Speetjens, Portfolio Managers Robeco Global Consumer
It is an actively managed fund. Stock selection is based on fundamental analysis. The fund’s objective is to outperform the index (MSCI All Country World Index -Net Return, EUR-). Per calendar year, profitability in 2020 reached 36.25% compared to 6.65% for its benchmark.
Robeco Global Consumer Trends strategy identifies structural consumer growth trends. The first of these is “consumption digital transformation”. The second is “emerging middle class” growth.
The third focuses on the growing importance of “health and well-being.” Within these three trends, fund managers try to select the stocks of the structural winners. It invests in companies in developed and emerging countries around the world exposed to consumption (such as leading digital platforms, media companies, online travel agencies, manufacturers of luxury products and established consumer brands).
The investment process that we apply is made up of three phases: Top-down identification of long-term trends from the point of view of consumption. Second, bottom-up selection of companies with high exposure to the selected topics combined with growth potential. Third, careful portfolio construction, in which the size of the positions is based on our level of conviction and risk characteristics. Expectations Central bank actions and low interest rates have driven investment demand for quality, growth companies.
Low interest rates have presented a favorable environment for companies with great long-term growth potential. Many of our investments fall into this category, due to its market leadership and sustainable competitive advantage. We believe investors should focus on high-quality businesses with valuable intangible assets, low capital intensity, high margins, and superior returns on equity.
We believe that the current above-market valuations for these companies are justified, given the quality of their business models, the high levels of profit growth and the sustainability of their franchises. We continue to maintain a positive outlook for our long-term investments.
Baillie Gifford Global Discovery Fund
Douglas Brodie, Portfolio Manager Baillie Gifford Global Discovery Fund
We are ambitious growth investors seeking out companies, wherever they may be, that have a chance of growing to multiples of their current size. We ask what a company can become in 5 or 10 years’ time, and what needs to happen for that journey to unfold.
We engage constructively with companies, encouraging long-term thinking and investing for growth, even in the face of the incessant short-termism of the market.
True long-term investing isn’t easy. Resisting external pressures can be tough, so it’s no coincidence that our firm is a multi-generational private partnership. The 47 partners all work within the firm and have unlimited liability, so our clients’ interests are aligned with ours. We don’t measure success or create targets around AUM or profitability, we measure it by the delivery of meaningful, after costs, outperformance for clients.
Significant wealth creation is, and always has been, the preserve of a tiny fraction of companies with blue-sky opportunities and inspired leadership. Not, for us, seeking ‘market coverage’ or fixating on share prices. We look for real-world opportunities as technology and business models evolve. This means we’re not simply active investors. We’re Actual Investors valuing constant learning, patience and fortitude.
Our Worldwide Discovery strategy aims to produce superior long-term returns by investing in a portfolio of smaller, immature companies with significant growth potential. Its investment philosophy seeks innovative, entrepreneurial, problem-solving companies early in their lifecycle. We believe these unique companies can lead to significantly better long-term outcomes and deliver real change, which if they get right will lead to sizable share-price appreciation.
Our style of investment is well suited to, first, identifying interesting businesses early in their development and, subsequently, backing them with a long-term investment horizon and ability to look through short term volatility. The opportunity for superior returns arises because:
- We routinely observe that it is the less mature, more entrepreneurial companies that shape the evolution of an industry. It is striking how little innovation originates directly from large businesses, and how often bigger corporations are bad at dealing with change.
- Smaller companies are therefore interesting not because they are small, but rather because the stage of development of their business can offer significant upside potential with regards to profit growth and, ultimately, share price appreciation.
- Bottom-up research is at its most valuable when assessing immature businesses. The businesses are often simpler and yet it is typically during this early stage that the market’s understanding of a company’s growth potential is at its least developed.
- Inefficiencies and valuation anomalies are more common further down the market cap scale.
Our Worldwide Discovery team has a dual role: managing specialist small-cap funds; and co-ordinating Baillie Gifford’s search for small-cap ideas globally. Historically the team have produced numerous investment ideas which have gone on to feature in Baillie Gifford’s large-cap strategies. Therefore, their insight is additive to Baillie Gifford’s investment capabilities as a whole and is beneficial to the Firm’s broader client base.
Thornbridge Nutshell Global Equity UCITs
Mark Ellis, Chief Executive Officer at Nutshell Asset Management
At Nutshell we invest globally in quality, ethically sound companies at reasonable valuations. We are high conviction investors who make meaningful allocations to a concentrated portfolio of no more than 35 companies.
Our investment process is bottom-up: we deploy a proprietary model-based system to analyse the global investible universe according to more than thirty different financial and non-financial factors that we consider important. Then, on a discretionary basis, we focus on the rare exceptional companies which have a persistent comparative advantage over others in their sector.
We consider capital preservation an important part of our role as custodians of our clients’ capital; accordingly, we like companies that have shown resilience in times of market stress, both in terms of share price and earnings. Importantly, we do not overpay: valuation is integral to our process. Part of this involves us being nimble: we will take profit on holdings where we think the expected long run return has fallen due to short-term price appreciation.
Unlike many of our peers we incorporate ESG fundamentally into our investment process. We use positive and negative ranking biases based on ESG performance, collected from independent, third-party data providers. In addition, we exclude certain sectors that we feel uncomfortable about such as the tobacco or fossil fuel industries. Incorporating ESG considerations into the heart of our process is not just the right thing to do, but research has shown that companies with strong ESG scores can outperform those without. Recently our portfolio was awarded 5 Globes from Morningstar for its ESG credentials having been in the top 1 percent of funds in its sector.
We consider ourselves well-positioned for the final quarter of the year, holding as we always do, quality, resilient companies at relatively cheap multiples for their given exceptional characteristics. We believe recent volatility and underperformance of quality, size and growth factors represent a buying opportunity as we head into year-end, a traditionally good time seasonally for equity returns.
Note as of the 5th October the Fund is now called the “Nutshell Growth Fund” same ISINS etc
To see more articles like this with Global Equity Funds, have a look at our equities section.