To big brands and beyond . . . how trust is powered by globalisation
NO ONE can accuse Gerrit Smit of having doubts as a fund manager. He is someone who believes passionately in how he goes about generating profits for his investors. He is not an individual for turning.
Since launching the Stonehage Fleming Global Best Ideas Equity Fund in the summer of 2013, he has stayed loyal to the vast majority of his stock selections. Only two of the 25 holdings have been jettisoned in favour of other companies. His best ideas of four years ago remain very much his best of today.
‘I have total conviction in what I am doing,’ he says. ‘I am investing for sustainable growth and everything in the fund’s portfolio is held on that basis. It lies at the core of what I and my team do as investment managers.’
Smit’s best ideas are primarily focused on the world’s strongest brands – the likes of Estee Lauder, McDonald’s, PayPal and Visa. His view is that the strongest global companies will continue growing, especially as they move into some of the world’s fastest growing economies such as China and India.
So far, his investment strategy has come up trumps. Since launch, the fund has comfortably outperformed the average for its peer group. It has also beaten the UK stock market – the best yardstick for any investment fund to be measured against.
‘Globalisation is growing, it is an unstoppable force,’ says Smit. As evidence he points to Walt Disney’s proposed purchase of a big chunk of 21st Century Fox from media tycoon Rupert Murdoch. He believes the acquisition will catapult Walt Disney forward – its shares are held by the fund – as it takes control of movie streaming company Hulu and creates a rival to match Netflix. He also purrs over the business model which McDonald’s has created, describing the company as one of the world’s most successful landlords. Some 95 per cent of McDonald’s restaurants are franchised out to independent operators, providing the fast food giant with recurring revenues – while building a property portfolio located in some of the best prime sites to be found in the world’s major cities. ‘It provides us with a growing dividend stream which we love,’ says Smit.
The two companies he has dumped are fashion retailer L Brands and beauty products manufacturer Coty, both based in the United States. Into their shoes have stepped payments giant PayPal (February 2016) and animal drugs company Zoetis (August 2017).
‘Although we are only investing in 25 companies at any one time,’ says Smit, ‘we are constantly monitoring some 125 in total. When we switch, we do so because we believe we can do better for the fund. The key is not to pay too much for the businesses you buy into.’
Patience is Smit’s middle name. Zoetis is a business he monitored for three years before buying into it. He says: ‘If you compare drugs for humans and animals, the markets operate differently. With animal drugs, there are none of the potential cliff edge issues which face pharmaceutical companies.’
Unlike some sceptics, Smit believes current company valuations ‘are not cheap nor overly expensive’. He says they are fair given the backdrop of low inflation and weak economic growth in most of the world’s major countries.
Naturally, he believes it is the global giants that will thrive the best against such an economic backdrop. You would not expect him to say anything else.