One such example held in the BNY Mellon Long-Term Global Equity strategy is TJX Companies. The parent company to formats including TJ Maxx and TK Maxx distributes discounted fashion and homeware. The company is well positioned to maintain steady growth over the long term, with the team praising its “buying power, compelling value proposition and the inherent flexibility of the business model”.
As the investment team stresses, quality does not mean sacrificing growth, but the pace and drivers of that growth will look quite different.
It says: “We have always cared about balance sheets and will not invest in imprudently leveraged companies. We have never believed that a healthy balance sheet equates with a lack of growth or opportunistic zeal.”
For Walter Scott, its qualitative criteria and quantitative hurdle rates are not dialled up or down depending on market conditions; they are consistently robust, and demanding.
With a more volatile ride perhaps for global equity markets the team remains upbeat: “We welcome the opportunity that might come to add to positions or invest in companies that have long been admired but precluded on valuation grounds.”
Split approaches, shared goals
Similarly, Newton recently took advantage of a dip in the share price of Richemont, bringing that Swiss luxury goods player – owner of several of the world’s leading luxury goods companies, including Cartier, Lange, IWC, Jaeger-LeCoultre and the recently acquired online fashion retailer Yoox Net-a-Porter – into the Global Equity Income portfolio.
The company’s shares performed badly in 2018, losing 35% from their May peak by the end of the year, which lead manager Nick Clay says was largely down to the decline in Chinese watch demand.
He adds: “We believe the market’s preoccupation with watches has meant the healthy majority of the business is underappreciated by investors. Within watches, the response has been for the company to repurchase inventories and cut revenue, which we think has provided an excellent investment opportunity, as we feel the company will reap the benefits of reducing sales, shoring up inventories and ultimately improving profitability.”
More to dividends than meets the eye
While a stable and rising dividend forms a cornerstone of Newton’s strategy, Clay’s dedication to seeking out yield-generators delivers more than just an income stream for his investors; he believes they can be a strong indicator of a company’s overall financial health.
“We regard a dividend as much more than merely a component of the overall return from a stock,” explains Clay. “It is tangible evidence of a firm’s profitability and represents a commitment by the management of a company to return the cash flow it generates to shareholders on a regular basis.”
With strong management and healthy balance sheet two of his quality indicators, one can quickly see the connection between income and long-term investment appeal – irrespective of whether an income stream is even the end objective.
