Please find below the notes from GAM Investments’ Weekly Investment Meeting held on 25 July 2018 – this week’s speaker was Ali Miremadi, who outlined his broad approach to managing global equity portfolios and commented on the prevailing environment.
Friday, July 27, 2018
Our approach to investing in global equity markets is built on fundamental stock picking, seeking to take advantage of the short-term focus of the market by looking for long-term value. We have a focused portfolio of around 40 stocks spread around the world, and in different sectors. Our turnover tends to be around 20%, equating to a five-year holding period. We undertake compare and contrast screening on a global ‘value’ basis which provides stock ideas for further analysis and have a ‘bench’ of stocks which are under serious consideration for inclusion in the portfolio. When we consider that one of these bench stocks may offer more potential upside than an existing portfolio constituent, this becomes a catalyst for change.
We conduct a three-year forward scenario analysis on all our positions, considering possible valuation parameters. We believe that our contrarian, concentrated and value-oriented approach is differentiated from its peers by the concept that markets are less efficient over longer time horizons. While many analysts look to predict short-term price adjustments, we seek to invest in businesses with the ability to generate sustainable growth or those with significant turnaround potential over a three-year horizon because we have confidence in our ability to analyse firms over such timeframes, which is something that other market participants for one reason or another may not do. For us, the most important attribute is that the share prices of these companies must trade at a significant discount to our proprietary calculations of intrinsic value. We recognise that scenario analysis does not always play out as anticipated and our central case for the three-year upside of our portfolio is a by-product of our ‘tramline’ calculations of bull and bear scenarios. The essential trading aspect of the discipline is that we must objectively offload those positions that are failing to perform as anticipated, yet recognise when short-term noise is obscuring the intrinsic value of a stock which we should fundamentally stick with.
In terms of the market environment, the last three months have proved somewhat more challenging. We have seen a flood of capital going back to the US from Europe, with Goldman Sachs estimating that Europe has experienced 17 consecutive weekly outflows. Meanwhile, the Financial Times (citing Lipper analysis) reported earlier this week that June saw investors pulling assets from European mutual funds at the fastest rate (EUR 38.3 billion) for almost five years. This serves as a headwind for us since we are structurally underweight the US. However, it is well worth making the point that the US versus the rest of the world debate is now tantamount to a growth versus value argument, with market leadership continuing to narrow in the States. As such, the gap between intrinsic value and prevailing equity prices in Europe is widening, especially in the banking and telecommunications sectors. Consequently, our central case for portfolio upside has increased in recent months. We are therefore increasingly optimistic over the outlook for our rigorous investment approach, especially given that our portfolios are very benchmark differentiated with a high active share.
Please note that no investment meetings are scheduled for the peak holiday period. The next Weekly Manager Views will be published in mid-September.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development.