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Transcript:

QUALITY US GROWTH WITH A SECRET ADVANTAGE

I'm Natalie Breen from Citywire and today, I'm joined by two Comgest portfolio managers from the US equities desk. Justin Streeter and Louis Citröen. Our experts are here to talk about their approach and how being based in France, gives them a unique perspective on US equities. So, we're here to talk about US companies and your approach to investing overall, but perhaps, let's start at the beginning and Justin, maybe you can talk us through your team and your key characteristics of the strategy overall.

Sure, well thanks, Natalie. So, at Comgest we do one thing and one thing only. That's quality growth investing in long-term equities. Louis and I are here as representatives of the US team. There's actually seven of us, we're based in Paris. We are analysts and PMs. Everybody's an analyst first and we're generalists. So, what that means is there's no silo of a tech expert telling you what to do or a healthcare or consumer expert. We speak seven languages. We have five nationalities. We come from diverse backgrounds. Engineering, sovereign wealth fund, investment banking. When we're looking at a name, a new idea for our portfolio, we're trying to hone that name through the fire of collective, collegial debate. So that's really the difference for us at Comgest.

How do you plug in that collective and collegiate debate? How do you plug that into your investment philosophy overall? What do you think it is that makes Comgest different?

I think you have to go back to the DNA of Comgest. We're an employee-owned company and we think that enables us to have a long-term approach to investing and by long-term, we mean that in an ideal world we hold companies forever.

Where can we find companies such as these?

So, you go back to what Justin just said. Quality, growth companies and in that order. It's very important that we go for quality first companies. The second element, growth. By that we mean we want earnings to grow by more than 10% per annum. One thing we believe is that those earnings growth will turn into share price performance over the long run. Now, I've said growth, it doesn’t mean growth at any price like you can sometimes see in our area.

You mentioned there, some stocks that you've held forever or nearly forever. Could you just talk us through some of those names?

Sure so, there's a company called Eli Lilly, which you've probably heard about because it's quite famous at the moment for having developed a drug that will help its patients for weight loss. The reason why we decided to invest in the first place, was the quality of the research that the company was doing. A unique position in the diabetes market, which is a duopoly. You have Eli Lilly on one side and Novo Nordisk on one side. The fact that they were sitting on new assets that would, potentially, transform both the diabetes and obesity markets, which were nascent at the time. Now you have this company that's been innovative and that's been able to tackle it. So that's a great example for me, of a company that's done that type of work.

So, you mentioned earlier that you're based in Paris. A US team based in Paris. How do you think that gives you an edge?

So, this is our little known-, our secret competitive advantage. So being based in Paris, counterintuitively is a strength for us. We get the news six hours ahead of New York, nine hours ahead of San Francsico. So, while we're digesting the news, discussing it, modelling, writing, our competitors are still asleep and so, we are not rushed into decision-making. The second one is, companies come to us. Companies want a diversified investor base, so they want US investors, of course, but having a diversified geographic investor base gives them more stability. So, they want European investors. We're one of the largest independent asset managers in Europe. So, they come to ask us to become shareholders with them. The last one is, Europe is not the middle of nowhere. This is one of the largest markets for our companies. So typically, US investors see one half of the iceberg, but for some of these companies, the US is not the largest piece of their business. It's not more than 50% and so, not seeing the rest of the world can be a handicap. Europe is often a faster growing market for these companies than the US is. So being here, being able to speak with our European colleagues real-time, some of the Asian colleagues on that same time zone, gives us an advantage to see things a little differently. 

So, what can investors typically expect from your strategy and what are you also hearing from companies within your portfolio?

So as Louis pointed out, the S&P is a growth market. The S&P has actually returned double digits since 2009, since this team has been in place. Now, over those almost 15 years, we've managed to outperform the S&P on an annualised basis with lower volatility. So that is really our north star, which is generating a very attractive risk-adjusted return. So, on a sharp ratio, we're in the top 1%, 2% of all of our peer universe. So really generating as much return as possible while being conservative enough that you're not buying one good year of growth and then being penalised the next year. I think the current environment, what's nice about it for us, is that it's become-, with inflation, with rates rising, it's become a more Darwinian market. That means that for quality companies that have lots of cash on their balance sheet with little leverage, that are highly cash generative, high margins, it's become a lot easier to grow and to outperform their peers. When you know your next-door competitor won't be able to fund itself as easy as it's been the case for a long while now. So yes, an ideal time for quality companies.