Europe Compounders

Our three Comgest Compounders equity strategies − Europe, Global and Japan − are all high conviction, low-turnover portfolios that aim to deliver above-average returns at below-average risk. The types of companies we consider for inclusion in our Compounders’ portfolios all demonstrate visibility, consistency and longevity of growth. These companies are typically industry leaders and/or dominant global players. Despite the passage of atime, these companies are still achieving earnings growth by increasing their share of existing markets or venturing into new regions. Their growth is often fuelled by significant investment in R&D, innovation, product, sales channels or by expanding into adjacent segments. When successful, such investments − organic or through acquisition − enhance a company’s strength and market position. As a result, they continue to grow and extend their life expectancy. The impact of this effect increases exponentially over time, making it an important source of returns and much more difficult for competitors to replicate. We believe that time therefore favours Quality Growth investors – provided they identify the right companies, at the right time and invest in them for the long term. The principle of Lindy’s Law proposes that companies that have been successful for a long time are the ones with the best chance of building on that success well into the future. We call these companies ‘marathon runners’.

ACTIVE MANAGEMENT: QUALITY GROWTH COMPANIES ARE NOT A GUARANTEE OF SUCCESS

To invest successfully, investors must not simply rely on a great track record. Instead, they must carefully observe what has driven the long-term growth trend of the company and whether it is sustainable. We also believe that the strength of a company's ESG credentials is important in sustaining growth and lowering their risk profile. After all, not every Quality Growth company will be successful, just as not every young company will fail. "Marathon runners" only become apparent after they have survived and thrived through many crises and recessions. Only then will they have developed a comprehensive arsenal of strategies to not only grow when market conditions are good, but also survive the tough times. For Comgest, it is therefore vitally important when constructing a Compounders equity portfolio to continually assess our long-term investment thesis for each company.