The global fund space is crowded and everyone will claim they are doing something different. This is a concentrated portfolio of 30 to 40 names with a quality bias overlay. They look to identify the very best companies which offer dominate business models, strong value propositions and can compound over many years. They also operate a sub bench of names which they would like to add but are too expensive. The sub bench is managed like the fund, so the names are constantly being reviewed.
To understand valuation, we talked about Tesla and Microsoft. There are four areas they look at – franchise quality, quantitative measures, management quality and investability. With Tesla, it fails in several areas, whether it is governance, the potential danger to the business model or the valuation. Whereas Microsoft has a strong moat and the potential to compound even if inflation is high. The only error with Microsoft was that they did not hold enough in relation to the potential opportunities it offered, and therefore the weighting is now high.
We talked about the team approach, and they explained that this comes across from different angles. They have a dedicated ESG team who look across different areas to identify things that drive value within a company. They believe that, although many claim to look at ESG they just focus on the G, whereas they have a rounded approach. They feel the E and S are just as important. They are constantly adding to their resources in this area and this is important, especially ESG in emerging markets, which many managers are missing….read more