Justin Streeter, Comgest
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
As a bottom-up stock picker, Comgest invests with a three-to-five year investment horizon, after building high-conviction, comprehensive views of select candidate companies and consensus through team-based discussions. Our focus is on quality and we build our concentrated portfolios of 25-50 stocks irrespective of benchmarks or sector allocations.
Comgest Growth America's high conviction portfolio of 29 names, seeks companies that are posting long-term growth, with limited volatility. We do this by looking to stocks that have consistently delivered double-digit earnings growth over 5 years or so, as well as having strong fundamentals.
This strategy has allowed us to provide strong returns to our investors; we have outperformed the S&P 500 since managing the fund (432.59% vs 417.39%)[i] while also providing double digit returns (+12.7% p.a.)[ii] and lower volatility than much of the peer group and index; we are among the top 1-2% of all managers on a Sharpe ratio basis.[iii]
The team comprises 8 members, with six acting as Portfolio Managers/Analysts and two members acting as pure analysts. This includes a dedicated ESG Analyst/Portfolio Manager, as part of Comgest's philosophy of incorporating ESG analysis throughout the investment process. The team has members from across the world, including China, the US and Italy, giving the team a well-rounded, global perspective.
How are you positioning your portfolio for 2023?
Recent growth investing in the US is renowned for the big bets on technology and the high beta companies with little to no earnings. Innovation and cutting-edge ideas can be very profitable, but they can also be very risky if they come with no track record.
Alternatively, resilient conglomerate companies can offer established mature services and revenue streams, while still incubating cutting-edge ideas, giving investors the best of both worlds. If there is a ‘cash cow' part of the business sitting alongside a more innovative division, this can tide over the bad years and lower the overall cost of financing. These companies often serve critical customer needs and provide repeat services. Examples within the portfolio include Oracle, Microsoft and Costco (recurring revenues) and Eli Lilly (critical customer needs). These types of businesses are less susceptible to the macro environment, providing more defensive revenue streams in tougher market environments.
It is important here to strike the right balance, avoiding both early-stage growth companies that make for a volatile ride and former ‘growth' companies which have run out of runway to invest in. We believe the sweet spot is in the middle, focusing on real growth which ultimately provides outperformance without the volatility; a lot of steady, resilient companies can still have surprises in store with a less bumpy ride.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
In line with our beliefs about looking for resilient conglomerate companies that also offer innovative products and service, we believe Oracle is a good opportunity. Not many growth managers invest in Oracle, as it can be seen as a company that has maxed out its potential. However, we believe its growth prospects are very attractive largely due to its 10% market share in the enterprise applications market (ERP SaaS). In an era of rising interest rates, there is a new found urgency to make operations as efficient as possible, which works in Oracle's favour, as its competition in this space is fragmented. Given this market is potentially worth $100-200bn,[iv] and Oracle is set to post 9-10% organic revenue growth from 2023 to 2026,[v] we believe this is an excellent quality growth investment.
Another example is the label manufacturer Avery Dennison; 80% of its business revolves around producing clothing/packaging tags. So far so conventional, but it is also developing ‘smart labels' which can track merchandise through a store. The combination of mature service lines and new ideas makes it a safer, steadier bet than pure concept stocks, while still providing the potential for strong growth.
Justin Streeter is portfolio manager of Comgest US Equities Strategy.
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[i] Comgest, Net performance data expressed in USD as of 31-Dec-2022, since Jan 2009.
[ii] Morningstar, Comgest. Net performance data expressed in USD as of 31-Dec-2022.
[iii] Morningstar EEA Fund US large cap growth, EEA Fund US large cap value, EEA Fund US large cap blend categories as of 31 Dec 22, since Jan 2009.
[iv] Oracle IR note sent to investors on 31st October 2022.
[v] Oracle IR note sent to investors on 31st October 2022.
About Comgest:
Comgest is an independent, global asset management group with headquarters in Paris and offices in Amsterdam, Boston, Dublin, Düsseldorf, Hong Kong, Singapore, Sydney, Tokyo, two branch offices in Milan and Brussels and a representative office in London. Since inception in 1985, Comgest has pursued a long-term ‘Quality Growth' and responsible investment style with the objective of selecting quality companies with solid prospects for sustainable growth. With more than 200 employees of 30 different nationalities, Comgest serves a diverse global client base and manages assets of over £25.3 / €29.4 billion (unaudited data as of 30 June 2022).
Important information:
Data as of 30 June 2022.
Before making any investment decision, investors are advised to check the investment horizon and category of the Fund in relation to any objectives or constraints they may have. Investors must read the latest Fund prospectus and the Key Investor Information Document ("KIID"), available at our offices and on our website: comgest.com.
Past investment results are not necessarily indicative of future investment results.
This material is not intended for the US market.
This material is for information purposes only and it does not constitute investment advice. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon.
All opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice.
Certain information contained in this presentation has been obtained from sources believed to be reliable, but accuracy cannot be guaranteed. No liability is accepted by Comgest in relation to the accuracy or completeness of the information.
Indices are used for comparison of past performance only.
Issued by Comgest S.A., 17, square Edouard VII, 75009 Paris, France - [email protected] - comgest.com
