25 shares meet

Michael Hughes on the special features of the GuardCap Global Fund. “The premise is that the economic cycle plays a much smaller role in the fund’s performance than with most other strategies.” This Thursday, the client portfolio manager will be one of the speakers at a special webinar from Alpha Research and IEXProfs.

What makes the GuardCap Global Fund as special as it is unique?

“Let me state that the GuardCap Global Fund has been in existence for 25 years, so the investment strategy should work. The fund is the combination of a growth and quality strategy. Sustainable earnings growth is more important than the biggest earnings growth. “

The markets in which our companies are listed are all liquid and highly efficient. Therefore, it is almost impossible to take advantage of an information advantage. What companies will earn this year is pretty well known. However, how much profit a business makes in the long run is less known and in some cases not appreciated by the market. That’s what we’re looking at.

In other words, our goal is to find the companies that can maintain their earnings growth for a long time and where this earnings growth has not yet been included in the valuation. These quality companies are generally smaller on the radar of investors. They are more aware of the fast breeders, who are valued accordingly. ”

Once these companies have been found, there is little reason to sell them again quickly. So the fund has ultra low turnover?

“That’s right. We’re holding on to positions for a long time. We’ve owned the shares in the portfolio for an average of 9 years. The only way to beat the market is to invest in the long term. We constantly ask ourselves: can a company sustain the current earnings growth for at least 5 years – it is not about the fastest growth, but about the longest growth, therefore the fund is primarily invested in companies that benefit from long-term growth trends.

“The only way to beat the market is to invest in the long run”

One of these is, for example, the growing demand for healthcare services. People are getting older so they need more care. That will not change in the coming years. The trick is to find the companies that will benefit the most: because they have the largest scale, own a well-known brand, have a superior distribution network or have valuable patents. Healthcare companies make up almost one-sixth of the portfolio.

But appreciation remains the key. Sustainable growers who are valued too highly will not be included in the portfolio. In a declining market, these can also fall sharply. ”

With only 25 shares in the portfolio, the fund is very concentrated. Is not that risky?

“On the contrary! There are not many companies that grow steadily over a long period of time and that have the quality to withstand bad economic times well. The more stocks a portfolio contains, the less sustainable the portfolio’s growth will be. Be careful to spread for The GuardCap Global Fund with 25 shares is less volatile than the MSCI index of 1,800 shares.

“Beware of spreading too much!”

Yes, the portfolio is concentrated, but you do not encounter risky stocks. Cyclical companies like banks and oil companies are a no go. In a declining economy, they will do poorly.

The goal is for the fund to keep up with the index in a rising market, but perform much better when a gloomy stock market settles. This is also why one avoids expensive growth companies or seemingly cheaply rated companies with a lot of debt. The basic assumption is that the economic cycle does not play a major role in the fund’s performance. This should lead to better performance, especially in less favorable economic times. “

How have the four fund managers reacted to the stock market volatility this year? Not likely.

“This year they have only changed three positions. They are not afraid of economic headwinds. This is exactly what the fund is positioned for. After all, a sudden decline in the market has never been preceded by a warning. No one rings the bell.

Last year, it was decided to invest a little more in defensive quality companies. In an optimistic market, like last year, it is the companies that are less interested, so whose long-term valuations become more attractive. But like I said, it’s all about appreciation. We always strive for the optimal balance between quality and growth. “

What type of investor is the GuardCap Global Fund particularly suitable for?

In fact, for any equity investor who invests long-term and who wants to achieve a better return over the long term than an index fund can provide. The fund can be the core of a portfolio with tactical investment choices around it. ”

  • Thursday, June 23 at 15.00 Alpha Research in collaboration with IEX Profs webinar organizes Portfolio Concentration: How Much is Optimal?
  • GuardCap Asset Management Limited and Columbia Threadneedle Investment provide behind-the-scenes insights into two concentrated portfolios.
  • Registration: webinar June 23

Rob Stallinga is a financial journalist. The information in his articles is not intended as professional investment advice or as a recommendation to make certain investments. Click here for an overview of IEX editors’ investments.

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