Last Word
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ARTICLE
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Fund Manager
VIDEO
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Square Mile
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Fund Buyer
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strategy directly from the fund manager himself.
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The Royal London Global Equity Select Fund is a new unconstrained fund that aims for an active share of typically more than 90%. It is concentrated in nature and aims to significantly outperform the MSCI World Index over rolling 3-year periods typically with between 25-45 holdings.
research and market views together with an explanation of the
Axis analyses the fund from four perspectives to bring you insight,
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Review By Nicola Brittain
COMPANY_ Last Word
The Royal London Global Equity Select Fund is a highly concentrated vehicle with an active share of typically more than 90%, 30-40% turnover per annum and a unique stock-selection process. It holds between 25-45 stocks and aims to outperform the index by 2.5% per annum over rolling three-year periods.
Scroll down to read more...
“RLAM’s Global Equity team selects stocks from a global universe of 3,500 using a unique five-stage process.”
JOB TITLE_ Investment Writer
YEARS IN INDUSTRY_ 17
LOCATION_ London
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NICOLA BRITTAIN
New global fund proposes clear investment objective
COMPANY_ Square Mile Investment
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
JOB TITLE_ Portfolio Manager
A_
“The team ultimately believes that its experienced team, stock-picking abilities and unique investment process give it an edge.”
Although this fund was launched in October 2017, the fund’s underlying investment philosophy has been used by its investment team for many years. Ultimately, the team takes an unconstrained approach paying little heed to the benchmark, to build a focused portfolio of less than 50 stocks.
Scroll down to read more...
YEARS IN INDUSTRY_ 10
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ANDREW JOHNSTON_
ANDREW JOHNSTON
The Royal London Global Equity Select Fund is a valuation-focused product that invests in wealth-creating stocks from developed and emerging markets. It aims to outperform the MSCI World Net Total Return Index by 2.5% per annum, net of fees, over rolling three-year periods. It has active share of over 90% with 30-40% turnover per annum. The fund invests at all stages of the Corporate Life Cycle, a framework used by the team to identify and evaluate companies.
Head of Equities Peter Rutter has been running the Global Equity Select Fund for Royal London since October last year but using the framework and underlying stock-picking process successfully for 15 years. Rutter developed this solution with fund managers James Clarke and Will Kenney initially at Deutsche Asset Management then at Waverton Investment Management and they now run the system from within Royal London, to which they moved in January 2017.
The team picks stocks using a five-stage process. The first – the measurement stage – uses an Economic Return Framework to assess the universe of 3,500 companies using real cash-based measures. This provides information that helps the team begin to compare companies across the global equity universe.
The stocks are then classified according to the team’s Corporate Life Cycle framework – arguably the most unique element of the process. It puts companies in one of the following five categories: accelerating, compounding, slowing and maturing, mature and turnaround. The team uses a four-factor algorithm to place companies on this graph.
Global fund benefits from life-cycle analysis
AUTHOR_ NICOLA BRITTAIN
Companies naturally move between the categories over time, Rutter said. “10 years’ ago mining companies were all compounders delivering high returns and high growth. They’re all turnarounds now.” Regions can slip into one or the other too - with some 75% of Japan on the right-hand side of the lifecycle chart (mature and turnaround), and 75% of the US on the left (accelerating and compounding).
The next stage of the selection process is the Shareholder Wealth Creation Test which uses quantitative and qualitative analysis to assess whether the company is willing and able to pursue the right strategy to create shareholder wealth, depending upon its position in the lifecycle.
For example, if a company is in the compound phase, its best strategy will be to sustain high returns on capital and growth, while a maturing company will focus less on growing than beating the fade and avoiding disruption. This stage of the process also looks at the type of incentives, industry dynamics and Environmental, Social and Governance (ESG) credentials best suited to a company’s place on the lifecycle. It reduces the investment universe from 3,500 companies to around 600.
Last Word
Perspective
These companies are then subjected to rigorous valuations using a range of primary materials including transcripts from conferences, conference calls, annual reports, shareholder letters, strategy documents, and calls with management.
The 200-300 stocks with the most attractive valuation characteristics are reviewed as part of the stock selection process. This informs portfolio trading and the team has a rigorous sell discipline.
Rutter argues that we are in interesting times, since the market has been dominated by growth stocks in a low interest rate environment, but with rates rising valuation is now likely to be more of a focus. He said: “The last six or seven years have been dominated by a falling global equity discount rate – this is the market ‘re-rating’. This has significantly helped high-duration growth and momentum stocks, but is a headwind for valuation-focused approaches. However, should markets de-rate, the stock specific and valuation focus can be a powerful alternative to growth exposures. Our strategy, has for example, outperformed in any single year where discount rates have risen.”
‘Source: CS HOLT, RLAM as at 31.03.18. Please note that the track records above do not reflect the performance of the RL Global Equity Select or RL Global Equity Diversified Funds, and should be used for information purposes only, not as a reliable indicator of future performance. The performance shown relates predominantly to institutional segregated mandates rather than UK-registered pooled vehicles, and the investment restrictions on these mandates may differ from the Royal London pooled funds launched in October 2017.’ Past performance is not an indication of future performance.
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Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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We have always appreciated the unconstrained investment approach as a way of delivering outperformance, but with limited regard to the index, the managers ensure diversification is achieved through other means. They ensure the portfolio is diversified with a range of companies that are at different stages of their life cycle, meaning those that are expanding quickly are combined with those at a more mature phase - so that the underlying businesses are driven by different economic forces.
AUTHOR_ ANDREW JOHNSTON
“Using an investment process that incorporates a robust framework to efficiently narrow down what is a very large investment universe, the fund is designed to be invested in higher quality companies, as measured by the strength of management and business model. The fund has a clear performance objective which is commensurate with the more aggressive nature of the approach, given its disregard for the index and limited number of holdings.”
The team ultimately believes that its experienced team, stock-picking abilities and unique investment process give it an edge. The differentiation of the investment process stems from the use of bespoke systems they call the Economic Return Framework and Corporate Life Cycle Model, both are designed to reduce the investment universe to a smaller number of high-quality options. To do so, these elements focus on converting and cleaning company accounts and looking at where a company sits in its life cycle. Further analysis, using more rigorous fundamental research and an examination of the underlying worth of the business, aims to identify firms that provide evidence of attractive wealth creation but also decent value. In our opinion, the impressive part of these early stages is that they shrink a massive number of investment options, from over 3,500 listed companies, to around 200-300. Finding an efficient way to limit the universe from the outset is one of the most challenging parts of investing in global equities. The final portfolio of between 25 and 45 stocks is built by selecting the best and highest conviction ideas, though these must also have an in-built margin of safety. We think this last point is important, and will see the analysts scrutinise the balance sheet and make sure that the valuation offers downside limits. This should help build a more robust return profile.
This fund is a fairly new strategy for Royal London Asset Management, having been launched in October 2017. It is managed through a team-based approach implemented by Head of Equities, Peter Rutter, and Fund Managers Will Kenney and James Clarke. While this fund vehicle has only been in existence since late 2017, it is important to note that the investment philosophy behind it has been used by members of the team for more than 15 years.
The fund invests in global equities and is designed to provide long-term capital growth and deliver a return greater than that of the MSCI World index. The team focuses on only selecting a limited number of holdings and takes little notice of how the index is positioned. As such it can invest in any country, sector or size of company, including firms listed in the emerging markets. The fund also has a well-defined performance objective, which is to outperform its benchmark by 2.5% p.a. over rolling three-year periods (net of fees). We believe, given the strategy’s fairly-concentrated and unconstrained investment approach, that this is a fair target. Furthermore, it is positive to see a new fund with such a clear objective.
Victoria Hasler, Head of Research, Square Mile Investment Consulting and Research Limited
Square Mile
Perspective
Fund buyers' perspective
Four fund buyers provide their take on the global equities market.
Market Reaction
Next
Jonathan Woo_ investment research_ Santander Asset Management
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“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Fund
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
together with an explanation of the strategy
directly from the fund manager himself.
Axis analyses the fund from four perspectives
Review By Nicola Brittain
These companies are then subjected to rigorous valuations using a range of primary materials including transcripts from conferences, conference calls, annual reports, shareholder letters, strategy documents, and calls with management.
The 200-300 stocks with the most attractive valuation characteristics are reviewed as part of the stock selection process. This informs portfolio trading and the team has a rigorous sell discipline.
Rutter argues that we are in interesting times, since the market has been dominated by growth stocks in a low interest rate environment, but with rates rising valuation is now likely to be more of a focus. He said: “The last six or seven years have been dominated by a falling global equity discount rate – this is the market ‘re-rating’. This has significantly helped high-duration growth and momentum stocks, but is a headwind for valuation-focused approaches. However, should markets de-rate, the stock specific and valuation focus can be a powerful alternative to growth exposures. Our strategy, has for example, outperformed in any single year where discount rates have risen.”
‘Source: CS HOLT, RLAM as at 31.03.18. Please note that the track records above do not reflect the performance of the RL Global Equity Select or RL Global Equity Diversified Funds, and should be used for information purposes only, not as a reliable indicator of future performance. The performance shown relates predominantly to institutional segregated mandates rather than UK-registered pooled vehicles, and the investment restrictions on these mandates may differ from the Royal London pooled funds launched in October 2017.’ Past performance is not an indication of future performance.
-
Income
target_
Size of
fund in £_
m
Launch date_25/02/2014
Performance
year to date_
Number of
holdings_
%
.
Kames Diversified Monthly Income Fund
pa paid monthly
Performance
since launch_
Total return
target_
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Peter Rutter is Head of Equities at RLAM and has over 15 years of experience as a Global Equity Fund Manager. Prior to joining RLAM, he was Head of Global Equities at Waverton Investment Management, where he worked alongside Clarke and Kenney. Prior to this, he was partner at Iron Bridge Capital Management for six years, where he co-managed the £3bn Iron Bridge Global Select equity strategy, delivering a successful five-year performance track record.
Head of Equities at RLAM
Peter Rutter
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Scroll down to see what Square Mile has to say...
Although this fund was launched in October 2017, the fund’s underlying investment philosophy has been used by its investment team for many years. Ultimately, the team takes an unconstrained approach paying little heed to the benchmark, to build a focused portfolio of less than 50 stocks.Scroll down to read more...
We have always appreciated the unconstrained investment approach as a way of delivering outperformance, but with limited regard to the index, the managers ensure diversification is achieved through other means. They ensure the portfolio is diversified with a range of companies that are at different stages of their life cycle, meaning those that are expanding quickly are combined with those at a more mature phase - so that the underlying businesses are driven by different economic forces.
This fund is a fairly new strategy for Royal London Asset Management, having been launched in October 2017. It is managed through a team-based approach implemented by Head of Equities, Peter Rutter, and Fund Managers Will Kenney and James Clarke. While this fund vehicle has only been in existence since late 2017, it is important to note that the investment philosophy behind it has been used by members of the team for more than 15 years.
The fund invests in global equities and is designed to provide long-term capital growth and deliver a return greater than that of the MSCI World index. The team focuses on only selecting a limited number of holdings and takes little notice of how the index is positioned. As such it can invest in any country, sector or size of company, including firms listed in the emerging markets. The fund also has a well-defined performance objective, which is to outperform its benchmark by 2.5% p.a. over rolling three-year periods (net of fees). We believe, given the strategy’s fairly-concentrated and unconstrained investment approach, that this is a fair target. Furthermore, it is positive to see a new fund with such a clear objective.
Victoria Hasler, Head of Research,
Square Mile Investment Consulting and Research Limited
The team ultimately believes that its experienced team, stock-picking abilities and unique investment process give it an edge. The differentiation of the investment process stems from the use of bespoke systems they call the Economic Return Framework and Corporate Life Cycle Model, both are designed to reduce the investment universe to a smaller number of high-quality options. To do so, these elements focus on converting and cleaning company accounts and looking at where a company sits in its life cycle. Further analysis, using more rigorous fundamental research and an examination of the underlying worth of the business, aims to identify firms that provide evidence of attractive wealth creation but also decent value. In our opinion, the impressive part of these early stages is that they shrink a massive number of investment options, from over 3,500 listed companies, to around 200-300. Finding an efficient way to limit the universe from the outset is one of the most challenging parts of investing in global equities. The final portfolio of between 25 and 45 stocks is built by selecting the best and highest conviction ideas, though these must also have an in-built margin of safety. We think this last point is important, and will see the analysts scrutinise the balance sheet and make sure that the valuation offers downside limits. This should help build a more robust return profile.
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market viewpoints, together with the
to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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The Royal London Global Equity Select Fund is a highly concentrated vehicle with an active share of typically more than 90%, 30-40% turnover per annum and a unique stock-selection process. It holds between 25-45 stocks and aims to outperform the index by 2.5% per annum over rolling three-year periods.
Review By Nicola Brittain at Last Word
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Management, where he worked alongside Clarke and Kenney. Prior to this, he was partner at Iron Bridge Capital Management for six years, where he co-managed the £3bn Iron Bridge Global Select equity strategy, delivering a successful five-year performance track record.
Peter Rutter is Head of Equities at RLAM and has over 15 years of experience as a Global Equity Fund Manager. Prior to joining RLAM, he was Head of Global Equities at Waverton Investment
Although this fund was launched in October 2017, the fund’s underlying investment philosophy has been used by its investment team for many years. Ultimately, the team takes an unconstrained approach paying little heed to the benchmark, to build a focused portfolio of less than 50 stocks. Disclaimer »
Clear investment philosophy puts fund above peers
“With the end of QE and the onset of QT, we now have confirmation that global economic growth is gathering pace. While equities in general and global equity funds specifically remain a favoured investment, it is essential to ensure that the manager’s investment process and style suit the economic environment. The era of expensive defensives seems to be over and economically sensitive stocks appear to be the way forward. Looking ahead, an active and pragmatic approach to global investing should provide the best investment opportunities.”
Tony Yousefian ACSI_ investment manager_ Global Equity Funds
Matthew Stanesby_ investment director_ Close Brothers Asset Management
“The current outlook for global equities appears to be pretty positive on the back of improving economic data and strengthening corporate earnings. Inflation remains reasonably contained, suggesting that benign liquidity conditions will persist, and we expect fiscal stimulus to support growth, as monetary policy tightens. We experienced a synchronised global growth recovery in 2017 and developed economies have maintained momentum into 2018. Tax reform in the US will prove growth positive, while both the EU and China have posted solid economic figures recently.”
Adrian Lowcock_ Investment director_ Architas
"Global funds give investors access to the world’s leading stocks so you get exposure to the best companies irrespective of where they are domiciled or listed. This makes them a great diversifier for investors especially those just starting out since you don’t need to have the money to invest in half a dozen or more funds. They can be great at expressing an investment theme or style across all markets."
Matthew Shock_ fund buyer_ Fiske International
"Global equity funds offer us broad exposure to multiple markets where direct investment would be difficult for us. We would generally use them in conjunction with area specific funds. This fund in particular offers an impressive investment process particularly with the concept of the corporate life-cycle approach. The management has an impressive track record having outperformed in 14 out of 16 years. We like its unconstrained approach and that is a high concentration fund – just 25-45 stocks."
Royal London
Global Equity
Select Fund
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
bring you insight, research
fund manager himself.
with an explanation of the
Review By Nicola Brittain
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Clear investment philosophy puts
fund above peers
Tony Yousefian ACSI_ investment manager_
Global Equity Funds
Scroll down to see what the Fund Managers have to say...
Scroll down to see what the Fund Buyers have to say...
Royal London Global Equity Select Fund
£
Based on M share class
Investment
Universe_
,
Estimated
OCF
Outperformance
target vs the index
Typical
holdings_
Typically in excess of
Initial investment
and minimum balance_
Source: RLAM. For illustrative purposes only. Capital at risk.
Date: FE Analytics 3 March 2018
Active
share_
over rolling 3 year periods
1
2
3
4
5
6
7
8
9
0
RLAM Global Select Equity Fund: Corporate Life Cycle Concept
Source: RLAM for illustrative purposes only
Accelerating
Increased returns
rapid growth
Compounding
Returns maintained
Growth most
valuable
Slowing & maturing
Returns defended
against increasing
competition
Turnaround
Restructuring
to increase
returns and
avoid failure
Economic return on
productive capital
Category:
Mature
Improving returns
more important
than growth
Required
return
RLAM Global Select Equity Fund:
Corporate Life Cycle Concept
Source: RLAM for illustrative purposes only
RLAM Global Select Equity Fund: Stock selection
Old
Dominion
Attractive valuation
Maeda
Road
Domino's
O'Reilly
Identify c.200-300 companies with:
Costco
Salesforce
Colgate
VALUATION
CRH
Strongest
Most attractive
Luxottica
Amex
Least attractive
TSMC
Bandai Namco
Adobe
Strong wealth creation
UPS
PetSmart
Svenska
Handelsbank
ASOS
Fast
Retailing
Nike
WEALTH
CREATION
Union
Pacific
Weakest