The best companies in a portfolio

What is the difference between the Threadneedle Global Focus Fund’s investment strategy and that of other global equity funds?

Andrew Harvie: “The fund’s strategy is focused on quality and long-term growth. For this reason, the two fund managers David Dudding and Alex Lee mainly buy quality companies that can also maintain or even increase their earnings growth in the long run. They do not focus on a few sectors, but look for opportunities in all industries.

For example, while a significant portion of the portfolio is made up of tech companies, the fund has traditionally been overweight in the financial sector. Finans has recently made an important contribution to returns in four of the five years. Now that interest rates are rising across a broad front, there is now more room in the portfolio for traditional quality companies.

It is clear that a valuation has taken place this year. This has primarily cost investors in growth companies returns. Yes, the fund also suffers. But a company like Microsoft, the largest portfolio in the portfolio, just keeps delivering.

The situation is different for less competitive companies, which are mainly dependent on economic growth. These are now affected by the deteriorating economic conditions and sharply rising borrowing costs. In the current situation, it is even more important for the fund managers of the Threadneedle Global Focus Fund to be selective. “

Andrew Harvey

Almost a third of the portfolio consists of tech companies. Is not it a little one-sided?

“This year we have reduced the tech weight a bit. The companies that have kept their place, or whose weights have even been increased a bit, have in common that their earnings growth is predictable.

In addition, many of the trends that have given wings to the prices of tech companies in recent years are still intact. The importance of the cloud will only increase further. The digitization trend is also continuing. Therefore, the fund managers see the latest divestment as an opportunity to buy at a discount.

“The average earnings growth for the companies in the portfolio is currently around 15%.”

That way, they avoid tech companies that have a good history but still do not make a profit. It comes as no surprise to them that these companies are among the biggest losers this year.

The fund managers, along with the ten other investors in Columbia Threadneedle’s global equity team, prefer to look for innovative companies with high returns on their investments, strong cash flow and sustainable earnings growth. That is why it is so important to understand developments in sectors. What competitive advantage does a company have to maintain its dominant position? The average profit growth for the companies in the portfolio is currently around 15%. “

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Which sectors are no go?

“Fund managers see particular challenges in the defensive grocery sector. Companies in this sector traditionally spend a lot of money on advertising to promote their brands. They are now being hit by technological disruption. New businesses can attract customers online more easily than before and thus steal market share from the known established names.

But companies that operate in highly regulated sectors or are sensitive to rising commodity prices will not be bought either. ”

Threadneedle Global Focus Fund is a fund with high conviction. How many positions must the portfolio have as a minimum in order to be sufficiently diversified?

“The portfolio currently consists of 48 names. That is also sufficient. It is important to be well dispersed in sectors. Take, for example, the tech sector. ASML is a leading chip company, Microsoft is in software, and Mastercard is big in digital payments. The stocks of these companies react differently under different market conditions, as was clear during the corona pandemic, for example. “

How has the fund management reacted to the turmoil in the stock market this year? Was there extra trade?

“The list of the 10 biggest rankings has largely remained the same. Inventories in companies facing short-term challenges have been reduced, while the weight of defensive healthcare companies has increased slightly. In addition, shares were bought whose price has fallen sharply. An example of this is ASML, which was sold last year due to its high valuation.

There is now also room in the portfolio for miner Anglo American, who is benefiting from increasing demand for raw materials to enable energy conversion. ”

What are the main long-term trends that should drive the fund’s returns?

“As mentioned before, the cloud is becoming more important, and the digitalisation trend is also continuing. The world needs more and more chips. Chip companies are further supported by governments that understand the importance of this industry.

In addition, we age further. Until recently, this trend was primarily visible in the mature markets, but now emerging markets, such as China, are also affected. That explains fund managers’ enthusiasm for innovative healthcare companies like Thermo Fisher. The company Novo-Nordisk is mainly dependent on obesity becoming a growing problem.

Then there is the movement towards electric cars and further sustainability of buildings. Companies that piggyback on all of these trends also continue to grow as the economy declines. “

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Finally, which investors would do well to enrich their investment portfolio with the Threadneedle Global Focus Fund?

“The fund has been bought by both institutional and private investors. With the fund, they have access to the best companies in the world. The goal of the fund is to grow faster when the stock markets are on the rise, and to fall less sharply when it goes the other way. Limiting volatility is very valuable for the two fund managers. “

  • Thursday, June 23 at At 3 pm, Alpha Research in collaboration with IEX Profs will host the webinar from the Stark Narrative studio in Amsterdam. Portfolio concentration: How much is optimal?
  • GuardCap Asset Management Limited and Columbia Threadneedle Investment provide behind-the-scenes insights into two concentrated portfolios.
  • Also sign up for: webinar June 23rd

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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