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For several years, investors, from institutional to retail, couldn’t get enough of the tech stocks with all their promises of future growth. But now the market has spoken and it’s saying precisely this – valuations matter again.
Martin Currie’s new ‘stronger for longer’ strategy
It’s been a long time in the making but, finally, Martin Currie Investment Management has launched a global developed markets big-cap version of its popular Asian ‘long-term unconstrained’ fund. The new fund is a pure match blending sustainability and growth.
The Legg Mason Martin Currie Global Long-Term Unconstrained Fund, as it is called, is a concentrated strategy, as most Martin Currie funds are. According to Willie Watt, Martin Currie’s Edinburgh-based chief executive, “we invest in companies that are stronger for longer”. Martin Currie is an affiliate manager of Legg Mason.
Watt and Tom Walker, head of the Global Long-Term Unconstrained strategy, and Amanda Whitecross, a portfolio manager for the fund, said on a visit to Australia last week that, ironically, ‘quality’ stocks were not widely held, especially when an investor takes a very long-term view of valuations.
Walker says that the global strategy – and Australian-domiciled fund – came about because of client demand. The Asian version, which is about nine years old, is a little different. It aims to beat a GDP-plus benchmark. The new global large-cap strategy aims to beat inflation, rather than GDP, plus 6 per cent. The back-testing is interesting.
Walker says that when Martin Currie studied the data, in 10-year lots which went back to 1984, there were only about 50 companies which fit the long-term quality criteria. Now, it’s about 350. And the stocks are “sufficiently” diversified by both sector and region, he says.
The strategy tries to get away from relative benchmarks, which tend to bear little relation with the underlying investment thesis. “We don’t like to use the word ‘benchmark’,” Walker says. “but our clients obviously want to measure us against something. We think CPI plus 6 per cent over a long period is a very good return.”
Whitecross says that Martin Currie takes a five-tear view – and beyond – in terms its valuations for stocks. “We think people are too short-sighted with their valuations,” she says. “We look at a company’s balance sheet, its cashflow, its P&L and how it has allocated its capital. We want to know whether the business model is sustainable.”
The analysts, Walker says, try to get under the skin of the management of the companies in which they invest. It takes about three-four months from the idea generation stage looking at a stock to investing.
“We try to understand how the management makes their decisions,” he says. “And we are increasingly looking at how environmentally friendly they are.”
The new fund tends to deliver higher returns and a lower-volatility profile. It’s a smoother ride than most other strategies, Walker says. “I think it should also appeal to retail investors, alongside the big pension funds which have invested to date.”
