David Dudding is the lead
portfolio manager of the
Global Focus strategy and
co-manager of the European
Select strategy
Global equities have been exposed
to topics that were very fashionable
such as IT and healthcare. How have
they impacted you?
We’re not thematic investors, nor
do we build portfolios from the top
down. We prefer to assess individual
companies on their own merits,
looking for those that can compoundout
growth consistently over a multiyear
period. This naturally gives us
exposure to certain secular trends
– ecommerce, cloud computing,
health care innovation, etc – many
of which proved successful last year.
These themes will not disappear in
2021 and many have arguably been
accelerated.
Take cloud computing as an
example. Corporate IT spend in
2020 was over US$3.5 trillion, but
only a small fraction of this went on
cloud computing. But it is growing
and its share of overall spend is
only set to increase. This will benefit
the dominant players in cloud
infrastructure (a market that’s not
easy to disrupt). So while valuations
may be stretched in some names,
we still have conviction that we can
find great companies with a growth
runway that more than justifies the
current valuation.
In view of a strong rebound in global
economies in the wake of mass
Covid vaccination programmes and
a return of inflation, do you plan to
shift the allocation of the portfolio
towards more cyclical areas of
the investment universe (such as
consumption, financial services etc)?
Equity markets are pricing in an
economic recovery at a rate faster
than previously expected, something
we also see reflected in the bond
market. Improved economic
sentiment is generally a boost for
the average company that relies
on economic growth to drive their
own earnings growth and so in turn
benefits value as a style. However,
the post-Covid world is likely to
be characterized by low economic
growth, low interest rates and a
build-up of debt. This is unlikely to
benefit the average company.
So while there will be companies for
whom mass vaccination represents
the potential end to a temporary
headwind (eg, travel and consumer
related industries), there are many
others for whom this is short-term
support. While we have no intention
to materially shift the portfolio, we
do have exposure to a range of
companies that should benefit the
reopening of economies. Our focus
remains on high-quality companies
that we believe can compound out
returns over a multi-year time horizon.
For portfolios that are heavily
exposed to the US, how will this
allocation change in the future?
For example, will the big tech
companies in Southeast Asia and
China (such as Tencent, Alibaba and
so on) become possible mediumor
long-term targets?
Our exposure to the US is not driven
by a top-down view of the US market.
It just happens that we find a lot of
great businesses in that part of the
world. However, these are global
businesses. What you also notice
is that our exposure to emerging
markets is the second largest.
This is deliberate and comes from
a mix of direct and indirect exposure.
We have been adding selectively to
emerging markets over the past few
months, although not necessarily
into big tech. Our focus has been
more on the emerging platform
businesses or financials, the latter
being an industry that can be
much less commoditised than its
developed market counterpart.
The focus on such a broad
investment universe requires a
very high commitment in terms of
analysis and research. How does
this come about in terms of the size
of the equity research team and
how does it fit in with the strategy’s
relatively low costs?
We benefit from a very deep
research capability and a strong
collaborative culture at Columbia
Threadneedle Investments. We have
analysts across the globe, many of
them portfolio managers in their own
right, who could all potentially source
an idea for us. This give us direct
access to local market knowledge,
which is something that is incredibly
important to us. It also helps that
they share a similar belief in what
makes a company great. However,
with that level of resource available,
it’s important to have a disciplined
philosophy and process. In addition,
we want to understand that we’re
investing in truly the best company
in its industry on a global basis.
How important are the ESG aspects in
company valuations and which of the
E, S, and G are the most prevalent?
ESG is absolutely key to our process;
it is one of the pillars that underpins
our research framework and is
inextricably linked to our focus on
competitive advantage and industry
structure. Just as we’d question a
management team that allocates
capital poorly, so we would question
those that don’t consider their ESG
profile. While governance is clearly
key for every investment that we
make, we believe it important to
focus on the material issues that
impact a company when considering
the E and the S elements. It is, in
part, for this reason that we have
developed our own internal RI rating
system which focuses on industry
materiality. This gives us conviction
that we are asking the correct
questions and focusing on the data
points that matter for that particular
company. In our view, this targeted
and integrated approach should
be supportive of stable, long-term
outperformance.
