Much like your old faithfuls, some investments are just great quality, and our Investment Analyst, Tracy Zhao knows how to find them.
Searching for quality: Investment tips with steady results
In my wardrobe there are a few pieces of clothing that are my life-savers. Neither of them are the trendiest nor the very high-end brands which are beyond reach. They are my trustworthy, quality items: well-fitting, timeless and won’t disappoint me whenever needed. They come with acceptable price tags and I appreciate their value over the years of enjoyment of wearing them. When it comes to shopping around for investments, similar to clothing, quality investments could generate steady returns with less surprises over the long run.
In my search for quality funds, my main focus is on:
- An experienced and committed fund manager.
- Defined investment strategy and processes which the manager follows rigorously.
- Generates return in line with risk profile.
- Proven track records.
The funds below tick the boxes and have been delivering steady results over the long term.
First State Global Listed Infrastructure aims to provide income and growth by investing in shares of companies that are involved in infrastructure around the world. It focuses on the companies that can self-fund the expansion of their asset base, generate stable revenue and pay a growing dividend. The portfolio mixes its defensive and growth holdings according to the economic or business cycle and is mainly invested in the developed markets, especially North America. The fund has been managed by Peter Meany since its launch in 2007 and he has experience in rising and falling markets. The fund has delivered steadily above peer return.
Man GLG Continental European Growth is managed by Rory Powe who has 27 years of European equity experience. The fund does what it says it aims to do: to achieve above average long-term capital growth. The portfolio mixes so called Established Leaders and Emerging Winners. The established leaders are those that have a clear 3 to 5 year expansion path in terms of earnings and free cash flow. The emerging winners are the companies that are in the vanguard of new or existing markets and have clear competitive advantages already. The fund has generated the highest cumulative return over terms of 5-year and 10-year, among its peers.
GAM Star Credit Opportunities invests in subordinated high yield bonds issued by investment grade or high-quality issuers worldwide. The investment team use their expertise to construct a portfolio combining a wide range of maturity and/or structured bonds and a mix of fixed coupon and floating coupon exposure. The fund has generated high, risk adjusted returns.
Quality Investment Trust
RIT Capital Partners, supported by a large and well regarded investment team headed by Ron Tabbouche, has exhibited an excellent long-term track record on delivering capital growth, allied to preserving shareholder capital from a diversified portfolio. For this reason we see the share price moving to a premium to its net asset value.
Investors looking for a risk-averse global trust may well find this a suitable investment. It is however worth noting that performance could lag in rising equity markets, as a result of its defensive bias.
When searching for quality stocks, I hunt for the companies that have the following characteristics:
- Quality and sustainable earnings.
- Strong balance sheets to support organic growth.
- Return on capital supported by efficient capital allocation.
- Steady return to shareholders.
The stocks below show traits of quality.
Compass Group, the world's largest contract caterer, has sound financials and strong revenue growth in America and some emerging markets. Steady earnings, credited to defensive nature of the catering sector and long-term trend towards outsourcing food service, generates cash enabling it to pay special dividends.
Unilever sells a wide range of everyday consumer brands which gives it steady and reliable earnings in developed markets. In some emerging markets its products are seen as aspirational which is providing growth and should be sustainable as the middle classes in these economies grow. The company has been generating a dividend yield above 3% over the past 5 years.
Legal & General Group is well positioned to benefit from an increasing demand for pensions, protection and savings plans. L&G has demonstrated resilience to the political environment and slowing economic growth and become the UK's first £1 trillion asset manager. The stock shows good long term value, especially with a dividend yield in the region of 6%.