A bold take on global equities
Disclosure – Non-Independent Marketing Communication. This is a non-independent marketing communication commissioned by Majedie Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Global equity investing is usually defined by either a ‘growth’ or ‘value’ approach but there are funds that blend these styles, offering a distinctive global equity investment…
In global equity investing, it can be challenging to find a proposition that is truly different.
While investors are typically pointed towards either growth or value strategies – allocating to these according to both their risk tolerance and expectations for markets – a challenging year, which has seen these factors fall in and out of favour, has demonstrated the potential dangers of investing through this lens alone.
Yet ‘blended’ investing often gets a bad rap, pitched as a compromise between the two styles with no clear views taken either way. Although this may be true in some cases, other funds apply genuinely innovative approaches to stock selection. Together these stocks form portfolios that can be loosely described as blended, in so far as they do not tilt towards one style or another, with impressive results.
Majedie Global Equity Fund, managed by Majedie Asset Management (MAM), is one example and it has used this flexibility with great effect, outperforming its IA Global sector peer group average by over 9% over three years to 17 August 2021.
A different ballgame
The team that manages the fund have achieved this long-term outperformance by applying a unique investment style to global equities: each of the three managers is responsible for a sub-portfolio invested under his own distinct approach, with stock selection at the heart of each manager’s process.
Tom Morris’s approach is to look to identify unloved companies with a clear path to recovery. Adrian Brass’s strategy is to identify companies which simultaneously have strong upside potential and downside protection, and Tom Record’s strategy is more of a growth approach, identifying companies with high return potential.
While the managers do consult with one another and with their wider analyst team, ultimately this means that each can make decisive investment choices, with investors benefitting from the best stocks within each investment style.
Capturing the Covid-19 trade
One of the key advantages of the sub-portfolio approach is that it means the team can capture the returns available at the extremes of both growth and value investing. They actively lean into moments of change, such as using sell-offs as a buying opportunity, and the approach gives them the flexibility to tap into these trades regardless of what is driving such market moves.
An example of this was the mass sell-off at the start of the Covid-19 lockdowns last year. Leisure and hospitality names, classed typically as value, such as Six Flags Entertainment and Wyndham Hotels & Resorts were immediately punished by a market that could not foresee their value returning in the short-to-medium term.
However, with both companies relatively well-run on the way into the pandemic, the team considered this overly pessimistic. The vaccine rollout and relaxation of restrictions in the US has led to a recovery in both stocks, with the team selling these positions once the pandemic recovery was fully priced in.
On the other hand, the pandemic sell-off also allowed the team to buy in to longer-term themes at more attractive valuations. A clear example of this is Maersk, the global shipping giant, which was downgraded by the market as pandemic restrictions made supply chains much harder to manage in early 2020.
However, the company was already trading at depressed valuations, despite being poised to take advantage of a wholesale shift in the shipping industry, which was seeing further consolidation to big players.
Another factor limiting its valuation in the shorter-term could be its environmental profile. In pure reporting terms, it has the highest carbon footprint within Majedie Global Equity’s portfolio and this is certainly a consideration for the team, with ESG analysis integrated into their process as a material risk factor.
Yet, shipping remains the lowest-carbon method to transfer goods long distance and the company is actively investing in sustainable fuel research and development. It also offers biofuel-based shipping as a premium service for retailers. The company’s esoteric ESG profile is exactly the kind that benefits from analysis through Majedie’s upside/downside-focused lens.
The combination of both shorter and longer-term opportunities uncovered in the pandemic sell-off perfectly captures the team’s flexible approach, which sees them apply tailored criteria to each investment.
The other side of the coin
While the two case studies above could be reasonably described as ‘value’, Majedie Global Equity’s flexibility means that it can buy into growth stories too – in fact, the team have benefitted from some of the more explosive growth stories of the last few years.
A particular example is in biotechnology, where the convergence of several technologies, such as single cell therapeutics, gene editing and RNA therapies, are driving value across the sector. A global pandemic has thrown the need for innovative healthcare solutions into sharp relief.
One such solution is single-use endoscopes. This technology was developed by Ambu, a Danish healthcare innovator that was subject to several profit warnings prior to the team at Majedie buying its stock. These had been driven by delays to the product’s launch, but the team believed that the usage case for the product was strong enough to justify a much higher valuation.
This usage case became particularly evident when patient’s lungs needed to be checked much more frequently during the Covid-19 pandemic. A single-use endoscope requires less intensive (and time consuming) cleaning than the traditional tool, and can be used on the same patient multiple times. The company’s valuation has since surged, as issues with their bronchoscope have now been resolved.
Through the cycle
The ability to successfully combine both deep value and high growth stocks in a single portfolio is a standout feature for a global equity fund. This ability has been more than demonstrated by Majedie Global Equity, as it has outperformed consistently in each quarter since the start of 2020, despite growth and value falling in and out of favour.
Most of Majedie Asset Management’s funds are out of reach for ordinary individuals, with high minimum investments effectively shuttering them to smaller investors. However, Majedie Investment Trust (MAJE) holds almost a quarter of its assets in Majedie Global Equity, alongside three other Majedie-managed funds, as well as a stake in MAM itself.
Currently trading on a c.17% discount, MAJE could be an interesting option for investors seeking exposure to Majedie Global Equity and its stablemates.
See the latest research on Majedie Global Equity here >