Best in Class: Morgan Stanley Global Brands
“The pandemic remains a risk. We've never seen a vaccine being discovered and manufactured in four years, let alone two, and so we think it's far more likely that society will have to live with the virus, whether it's through social distancing or testing programmes.
"And that makes the outlook far more uncertain and volatile than we believe the market is assuming.”
That’s the view of Laura Bottega, the lead product specialist on this week’s Best in Class, the Morgan Stanley Global Brands fund, who spoke to us mid-June.
The team behind the fund has a simple mantra: ‘don’t lose money’ and they do this by investing in quality companies with defendable and visible future earnings, allowing them to give attractive returns to shareholders and reinvest.
It is a strategy that has proved successful in the long-term but has particularly come to light in 2020 following the unprecedented market sell-off.
While many of its peers were reeling, this fund was back in the black as early as April and is now up 8.5 per cent year to date.
Ms Bottega says 2020 started with high expectations, which worried the team, citing the fact that earnings were at their highest level since 2005.
She says: “High expectations are dangerous as they can easily disappoint. Global Brands was defensively positioned from our bottom up stock picking, with over 85 per cent of the portfolio in our three high quality sectors: staples, healthcare and IT, and we thought this defensiveness would be needed and we were right.”
The fund itself is run by a ten-strong team, headed up by William Lock.
Mr Lock heads up the London-based international equity team and joined Morgan Stanley in 1994. Prior to joining the firm, he worked at Credit Suisse First Boston's Corporate Finance Group.
The fund is a very concentrated portfolio of high-quality global companies.
The criteria the team looks for to define a quality company are features such as intangibles assets – for example permits that can provide an advantage over competitors.
They will also look for companies benefiting from economies of scale and leading market distribution. Also, every stock will have to yield at least 1 per cent in order to show commitment to minority shareholders.
“We think the discipline of having to pay a regular dividend is important to management, and it matters for the total return to shareholders over the long term.
"Secondly, we prefer dividends as it doesn't involve taking a view on the company share price,” Laura says.
From their initial list, the managers will analyse whether the returns generated historically are sustainable going forward. They will need to see that the quality characteristics of the firm can be defended, and that the firm is in control of its own destiny.