Global market uncertainty

Are there still investment opportunities?

For more insights from Simon and the team please register for the Ninety One Taking Stock webinar here. This webinar takes place on Tuesday, August 18 at 10h30 or 16h00.

DUDU RAMELA: Simon Brazier is co-head for quality at Ninety One. Simon, thank you very much for joining us this evening. Let’s start with a global perspective on the markets in the midst of the pandemic.

SIMON BRAZIER: Right now it’s very tricky because I think the ultimate outcome is probably telling by scientists and politicians, rather than maybe by central bankers to the degree at which economies can ultimately recover. Having said that, the great thing, I suppose, is that post the financial crisis in 2008, …… banks globally have rebuilt their balance sheets. So the one positive right now from an economic perspective is we’re not having a banks crisis at the same time as the economic crisis because they’d rebuilt their capital buffers and they’re working well.

So it is tricky. The outcome is now looking very uncertain globally. There are some signs of recovery coming through which can hint to some prospects of normality.

DUDU RAMELA: You mention that it’s quite tricky. So how does the quality team assess opportunities in such an uncertain environment? I mean, what kind of companies do you look for?

SIMON BRAZIER: That’s a good question. We are very long-term investors. That’s the first thing to say. And what we are looking for is what does quality mean? I suppose we are looking at companies that have market positions and business models and financial models that mean they’ll still be around in 10, 20, 50 years’ time. Many of the companies we invest in are over a hundred years old, companies like Nestlé, Johnson & Johnson. These are companies that were founded in the 1800s. So a big chunk of our stocks is in companies that have been around a long time. They’ve gone very hard to replicate their enduring competitive advantages and they often have dominant market positions.

And we also don’t like companies that are particularly cyclical. We like them to not have that sensitivity to the economic cycle and to have very strong balance sheets. So that’s really what we focus on, which means that these companies can live through the likes of a pandemic, and many companies have lived through pandemics, wars and all sorts over time.

DUDU RAMELA: You mention a strong balance sheet, and that’s the word that we want to focus on. How do you balance all of this? You’ve got a good mix of companies that have stood the test of time and have trading histories of more than a hundred years – the likes of Nestlé, for example, as well as technology stocks that dominate their market in the Ninety One Global Franchise Fund.

SIMON BRAZIER: That’s an interesting point because, yes, there are some even more defensive consumer staple type of names like Nestlé. But actually we also believe that some of the more modern companies, ones that have not been around for so long. For example, Verisign is one many of you have never heard of. But if you have a website address which has a dotcom or a dotnet at the end, then you will pay effectively $8 a year to Verisign, because they are the global domain-name registrar for both of those two main names. So a company like that has very strong growth and very high margins. If it doesn’t take much capital, has a very strong balance sheet, it does well.

Another one of our biggest positions is Visa. This is a company that is the face of a technology company. It has huge barriers to entry because it’s very difficult just to set up a new credit-card system and have your system in virtually every single shop globally. And it has a huge amount of technology that enables that business to operate. So those types of businesses – Microsoft is another one which we’ve done very well out of.

Microsoft effectively reinvented itself and is now a leader in Cloud computing. And if you look at Microsoft and IBM –  how Microsoft really jumped forward from IBM, is because it was first into the Cloud. Those types of businesses, as well, we think also have a part in our portfolio.

And the other key point is that they are very capital-light, so they don’t require a lot of physical investments, like a mining company for example, in order to grow. These companies can grow without that; they can have very high returns on their investments.

DUDU RAMELA: And Ninety One is one of the only globally integrated investment businesses in South Africa. Would you say that puts you at an advantage?

SIMON BRAZIER: I think it’s a huge advantage. I mean, I joined the company six years ago to run the team when Clyde [Rossouw] was based in Cape Town, and I’m based in London. The one vision that Clyde and I had was it didn’t matter whether you are running a global fund, a UK fund, a South African fund, an Asian fund – the companies that we are investing in are increasingly global in nature. Many of these have revenues right across the world.

So we now have a research team that’s based in Asia, in Cape Town, in London, in New York – just for our team. And those analysts are looking at companies from a global perspective. It’s no longer good enough just to look at them in their local regions. And that gives us the opportunity to find the best company to meet globally, but also to assess them against their peers globally. And so having that global perspective we think is incredibly important.

DUDU RAMELA: Much has been said about this pandemic and things being done differently, and a new normal and a new way of doing things. Have there been any changes to how decisions get made in portfolios over this period? How has Ninety One Global Franchise Fund fared during this time of extreme dislocation in markets?

SIMON BRAZIER: Fortunately, the fund has performed very, very well. It’s actually up in this year; we’ve made clients money this year, despite what’s been going on in markets. In terms of how we’ve done that, actually it’s been business as usual because, having had analysts right across the world, we’ve been very used to operating our business almost remotely in terms of using Zoom calls, or we also use Microsoft Teams. We use one of the products of our biggest invested companies. And so we’ve been very used to working like that. We always believe that in the search many heads are better, and having that collaborative environment. And we still are able to reproduce that and use that technology.

But at the end of the day, you’ve got to take over franchises and Clyde is the portfolio manager. He still makes all the decisions, and he’s still making some good decisions, which is great to see.

DUDU RAMELA: Simon Brazier, thank you very much. Simon leads the quality team at Ninety One Global.

For more insights from Simon and the team please register for the Ninety One Taking Stock webinar here. This webinar takes place on Tuesday, August 18 at 10h30 or 16h00.

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