In spite of admitting getting regional overweights to emerging markets and the US wrong, Peter Saacke, manager of Artemis Global Growth fund, says performance has been driven by the recognition of behavioural factors on stock prices.
The manager uses the SmartGARP screening tool, which screens for stocks that are cheap compared with growth forecasts, but he adds: “Where there is evidence that those growth forecasts are realistic (rare) or even conservative (even rarer), rather than too optimistic (very common), I spend most of my time doing due diligence on SmartGARP’s suggested stock ideas, and thinking about how to blend them to create a diversified portfolio.”
Mr Saacke, who in January 2014 will mark 10 years of managing the fund, explains: “We screen and monitor stocks’ financial characteristics very rigorously and unemotionally. We also recognise that behavioural factors have a strong, lasting influence on stock prices. Much has been made of the ‘new normal’ following the financial crisis, but investors’ behavioural quirks and biases are as strong and persistent as they were before the crisis.”
The process has remained relatively unchanged, although the manager has noted the amount of information now available on global stocks in general, and emerging market stocks in particular, has increased significantly in the past decade.
Macroeconomic variables, such as gross domestic product growth, inflation and interest rates, are monitored and affect whether the fund investigates more cyclical stocks at one time rather than defensives, or more commodity plays or financials at another.
Mr Saacke adds: “At the moment, from a macro perspective alone, cyclical sectors such as autos, travel and leisure, media and technology are looking particularly attractive. This reflects facts such as G7 GDP consensus forecasts edging up.”
The £174.7m fund has performed consistently, outperforming both the MSCI AC World index and the IMA Global sector average in one and three years to November 26 2013. In addition, the five-year return of 97.88 per cent outperforms, just, the sector average of 97.07 per cent but lags the index return of 102.39 per cent, according to Morningstar.
“Over the past few years the fund has performed well in spite of our regional asset allocation having been wrong – that is to say, we have systematically had a big overweight in emerging markets and corresponding underweight in North America; the latter has outperformed the former materially in the past three years,” Mr Saacke explains.
“Our stock picking has been excellent in all regions. The list of our biggest stock-specific contributors is an eclectic one: of the top 10, three are American, three Japanese, two European, one Chinese and one Australian.”
A significant change in the past 12 months has been a move from underweight to overweight in technology to take advantage of improved valuations, including investing in Apple in August, having previously sold out of the stock in July 2012.
“The US tech sector underperformed the broader market by more than 15 per cent between September 2012 and March 2013. At that point, however, valuations had become much more appealing and consensus positioning had normalised. When the news flow on a number of companies began improving, we started moving from underweight to overweight,” Mr Saacke says.