Ignoring indices in favour of key stocks
Peter Rutter, co-manager of JO Hambro Investment Management’s £27.6m Waverton Global Equity fund, echoes a message many equity fund managers have been propounding recently: that although in the near term investors may be fleeing to safe havens such as cash and government bonds, the yields on stocks make them look much better long-term value.
“Given that 10-year government bonds yield just 1.5 per cent and cash returns are close to zero, it is interesting that there are stockmarket opportunities in some world-class companies with sustainable dividend yields in excess of 3 per cent and underlying earnings or cashflow yields in high single digits,” he says.
The trouble active global equity fund managers like Mr Rutter face, however, is convincing clients they can pick these companies better than the market.
In a competitive sector, the fund has changed its look more than most in recent times. A new management team took it over just a little more than a year ago, with Mr Rutter joining existing co-managers Charles Martyn-Hemphill and William Kenney in April 2012. The team has tried to build on the process it uses to pick stocks, analysing specific metrics of corporate cashflows that enables it to compare companies around the world with one another.
“The investment process seeks to identify companies with strong business models and management strategy that is creating wealth for shareholders. Having identified these businesses, the fund invests in specific opportunities where our rigorous fundamental analysis suggests the long-term value of a business is significantly greater than its current share price,” Mr Rutter says.
A recent example of this focus is the fund’s investment in Apple, one of the fund’s top 10 holdings at 3.71 per cent of its portfolio. Mr Rutter notes: “Apple has been the biggest contributor to performance – up 49 per cent this year – as it continues to successfully expand its highly profitable business. The key investment thesis milestones we continue to monitor for this holding are Apple’s ability to sustain its current growth and perhaps most importantly its ability to tie customers into the Apple product range for the longer term.
“Historically consumer device manufacturers have been unable to do the latter – for example, Nokia, Motorola, Dell – and the long-term opportunity for Apple is to buck this pattern with integrated software services such as iTunes, Apps and iCloud.”
Another contributor to the fund’s recent performance has been American Express, whose shares have increased 22 per cent in 2012 as the company continues to expand its global franchise with good growth in the number of card members and the value of transactions over the American Express network.
However, it has not all been plain sailing, with the manager admitting the copper mining company First Quantum has done less well for the portfolio, falling 11 per cent this year over concerns about the longer-term outlook for copper prices.