Tying into a range of themes playing out in the fund – paperless payments, 3D printing technology, e-commerce and online advertising – the technology sector makes up 36.6 per cent of the portfolio, according to the latest factsheet.
“The performance has really been driven by the selection of a number of themes that have worked and strong stock selection, in particular in the internet sector with companies such as TripAdvisor [the travel website],” explains manager Ian Warmerdam.
“The particular skillset on the team is the ability to pick up on those areas of long-term secular growth and selecting those companies that have a high chance of succeeding in those areas.”
The fund’s primary aim is to provide a sustainable, high level of growth in the long term by investing in a concentrated portfolio of global companies.
The manager and his team follow a bottom-up approach with a thematic overlay and are really seeking those companies they believe to be under-appreciated by the market and that have the potential to achieve significant yet sustainable growth.
“We are not making top down market calls so we have not really been moving round much on a geographical or state of the economy basis,” the manager says. “We are really bringing a fundamental valuation-based approach to growth investing. That [is a] combination of finding companies that we believe have strong long-term secular growth potential and finding them at attractive valuations, not being sucked in by fashion. That is a formula that works through time.”
Mr Warmerdam adds that as part of the initial screen the team looks for, and then avoids, market hype. He cites social media as a prime example: “With areas such as social media and cloud computing there is a significant amount of hype in the market, which has caused some extremely high valuations. Really it is the valuation sensitivity that keeps us out of these areas until we can pick them up at a more attractive price.
“We really want to see substantial absolute return opportunity on a five-year basis and if the valuation isn’t attractive on that basis we don’t want to be in it.”
In the five years to December 6, the fund almost doubled the average return from the IMA Global sector, posting a 151.15 per cent increase, compared with the sector’s 83.83 per cent. The fund’s MSCI AC World index benchmark, by comparison, posted an 89.56 per cent return during the five-year period.
“Broadly speaking most of the themes we have orientated the fund towards have worked in our favour,” says Mr Warmerdam.
“Orientating the fund towards long-term secular areas of growth that have a high chance of continuing to happen way into the future is a better way of making money than trying to predict the market. I have no idea what the US interest rate is going to be in three years’ time, but I can say with some confidence that the use of the internet or online payments, for example, will continue to grow.”
Combined with a strong sell discipline, where the manager sells out of stocks immediately if they fail to perform or reach a fair valuation, Mr Warmerdam also pays little attention to short-term market swings.
“We are very focused on generating long-term performance, so we tend not to try to hedge against risks in the shorter term of the market swinging around. By really focusing on the long term with a valuation bias, in that three to five years we can generate significant outperformance and any form of hedging against market moves would be a mistake.”
Expert View
Martin Bamford, managing director, Informed Choice:
This fund has done a good job of consistently outperforming the sector average, by investing in a reasonably concentrated portfolio of global stocks. Ian Warmerdam has something of a technology bias, as he also manages the Henderson Global Technology fund and is director of technology investment at Henderson. Overall it is an appealing prospect.”
