Why is this fund on our Foundation Fundlist?

We believe this fund stands out as a strong option for those looking for a global approach to equity income investing and happy to take some risk in terms of currency movements. The highly selective approach could potentially outperform over the long term through backing carefully selected businesses that consistently grow their earnings and dividends while remaining resilient to whatever the economic environment throws at them. There is a preference for solid, reliable businesses that can gradually ‘compound’ returns for investors and have a low degree of economic sensitivity. This tends to lead to a portfolio concentrated in the consumer staples, healthcare and software sectors and the avoidance of areas such as mining, autos, airlines and house builders. A typical holding has higher return on capital, return on equity and operating margin than average. These are ‘quality’ characteristics that the manager tries to capture without paying too much of a premium above the valuation of the market as a whole. In contrast to many fund managers, valuation comes at the end of the process rather than the start. The manager will prioritise companies largely in control of their own destinies regarding regulation, pricing and capital needs, as well as being highly diversified in terms of product, market and geography. Low debt and a capable, honest management team are also prerequisites. Given only a small number of companies have the characteristics the manager is looking for, and can be purchased at an attractive price, the portfolio tends to be concentrated in a relatively small number (30 to 50) names. This increases risk and puts more emphasis on individual stock selection. Given the approach, we would expect the fund to underperform in a strong economic environment when more economically sensitive businesses fare best but offer more resilience in a difficult or sluggish scenario.