Martin Currie Global Portfolio Trust sees long-term opportunities from market shake-out
When fear and uncertainty is rife, shorter-term investors run for the hills – but this presents prime opportunities for long-term thinkers.
In recent weeks, as alarm about the coronavirus outbreak and oil prices has gripped markets, fund manager Zehrid Osmani, manager of Martin Currie Global Portfolio Trust has been topping up several of the stocks in his various portfolios, while other potential investments that had been “on the bench” are now looking good value.
“Due to the short-term nature of markets, some good shares are regularly undervalued,” says Osmani, who is head of Martin Currie’s global long-term unconstrained team.
He moved from Blackrock in 2018 and took full control of the global trust and several other open-ended funds later that year.
Look to the long term
“At the moment, fear is high, but for us as long-term investors it’s a great opportunity to reinforce positions in some of the companies that have lost 15-20% in one to two weeks, provided the long-term situation hasn’t changed.”
And as far as the coronavirus is concerned, the long-term nature of most good quality companies has not changed, says Osmani.
“Yes, Q1 and Q2 is going to be pretty brutal in terms of economic slowdown and ripple effects down the supply chain, but at the same time when you’ve got this very abnormal exogenous shock, you’re going to get a monetary and fiscal policy response and we are potentially entering a period of synchronised action in terms of policymakers.
“For short-term investors who want to focus on Q1, the risk is that you’re going to miss out on a potentially sizeable recovery in the market on the positive impact of monetary and fiscal policy responses.”
Osmani has been more active than usual in the last 18 months since gaining full control of the Martin Currie Global Portfolio trust, selling out of a number of stocks to shrink the number of names in the portfolio from the high 40s down to the low 30s.
Focus on quality, growth and market megatrends
From these sales he used the firepower to remould the portfolio to fit into an investment style he calls “quality growth”.
Stating your investment style is extremely important, he says, as it allows investors to know what they get when they buy the trust.
“What we define as quality growth is companies that have high returns on invested capital (ROIC) and an attractive growth profile.
“To get that, typically the type of companies we buy are those with high barriers to entry, low risk of disruption and dominant market positions where they operate.”
Those three parameters, he says, give companies very strong pricing power, which leads to high returns, strong cashflow generation and an attractive growth profile.
Alongside such a ‘bottom up’ company focus, the 10-strong team look for companies that fit into three potent ‘megatrends’ they see as gripping the world now and into the future: demographic change, the future of technology, and resource scarcity.
As the trust has an unconstrained investment mandate, companies in the portfolio are spread around 16 countries across the US, Europe, Asia and other emerging markets, with market caps ranging from above US$1trn to below £3bn.
Visa and Adobe, two of the largest holdings in the trust, were picked for their strong recurring revenues and the copious amounts of cash they chuck off.
Owning dominant franchises, very high returns, strong cash flow and very attractive long-term growth profile, they are typical of the companies that the fund looks to invest in.
Electric vehicles – optimising the investment opportunity
Plugging into the intersection of the megatrends of resource scarcity and the future of technology, the theme of electric vehicles is seen as a particularly attractive market.
The team spent three or four months work scanning the sector from top to bottom, inside and out, to find the companies with the ideal characteristics and investment returns before choosing which stocks to buy.
“When you look at the history of investing there’s not been many occasion of times when you’ve had an established market like the automotive market that is being regulated and mandated by authorities to move to from combustion to electric at the same time as consumers want to make that shift,” says Osmani.
“And it’s not something nascent, autos is an established market, so you know the growth is going to be there.”
His team forecasts electric vehicle take-up will produce 30% annualised growth for the next 10 years.
But it’s not just about buying Tesla or lithium miners, neither of which are in the portfolio.
“It’s about making sure we put our clients assets in the optimal way to make sure they capture that growth opportunity,” Osmani says
Buying EV manufacturers exposes you to a market that is getting crowded, with price aggression seen in the discounts being offered, and with market valuations looking heady for the likes of Tesla.
“So for us, putting clients money here means exposing them to competitive pressure and to consumer choice risk.”
“Why should we make a call on Tesla selling more cars than VW or General Motors (NYSE:GM)? Let’s try and think about sleeping better at night and find something that sells to all car manufacturers so we can capture that 30% growth whatever car the consumer chooses.”
The ROIC, the team’s research indicated, are best in the technology and connectivity section of the supply chain, especially where companies provide mission-critical technology and so possess more pricing power.
For the trust, this means Infineon Technologies AG (OTCMKTS:IFNNY) and Taiwan Semiconductor (NYSE:TSM).
