FayRen

About Fay Ren

Fay Ren works within the investment group and has specific responsibility for quantitative measurement of sector, style, portfolio and asset class returns. She undertakes asset class studies and coordinates the firm’s top-down symposia at which asset class settings are determined. She also undertakes security analysis in conjunction with the Portfolio Managers. Fay joined the firm from Imperial College London where she completed a BSc in Mathematics and a Masters in Applied Mathematics.

Style Performance

By |2020-06-14T08:42:26+00:00June 14th, 2020|Asset Class Returns, Cerno Capital, Cerno Capital Posts, General Investment, Other Posts, Sectors & Corporate Performance, Strategy|

The rally in equity markets has extended into June, having recovered substantially from the depth of the March sell-off: The global equity index is -6.3% from its peak and the S&P 500  -5.4%, whilst the NASDAQ index has made new all-time highs. Despite the deepest economic downturn since the Great Depression, a dislocation between financial markets and economies has opened up as governments’ blend of monetary and fiscal policy initiatives has underpinned prices. Markets were highly discerning in the initial sell-off, less so since. In the initial phase, they rewarded visibility and stability and punished the opposite. Cross sectional return dispersion in different markets spiked, and volatility of price moves reached the highs recorded in the Global Financial Crisis of 2008 before easing in the second quarter. The concentration of performance in two sectors – Tech & Health Care – gave rise to extreme narrow market breadth, with the median company in the S&P 500 still underperforming the index by 15.7% year to date as at the end of May. Defensive quality companies that offer investors consolation in the form of revenue growth, profit retention, and financial resilience in their balance sheets and cashflows outperformed the market during this period. [...]

Accenture added to Global Leaders portfolio

By |2020-02-26T13:22:45+00:00February 26th, 2020|Bottom Up, Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment, Other Posts|

Accenture is the largest and most diversified independent technology consultant and outsourcing provider globally, serving customers in over 40 industries in more than 120 countries. Formally established in 1989 (but operating since the 1950s), Accenture began life as the consulting division of the then accounting giant Arthur Andersen and subsequently broke off from its scandal-ridden parent in 1998. Ever since its founding, Accenture has had a mandate to focus on business and technology consulting related to managing large-scale system integrations, which has differentiated it from peers, who have tended to emphasise management consulting. Under its former CEO Pierre Nanterme and now Julie Sweet, Accenture has followed a strategy of continuously identifying and going after new high-growth verticals, aided by the institutional experience and insights gained from the numerous industries they work in. This approach enabled the company to stay agile and detect emerging technology trends early, understand how it can be integrated into business operations, thereby remaining relevant to their clients in an advisory role. Today, the company derives over 60% of its revenues from ‘new’ businesses, including digital, cloud, connectivity and cyber-security, and actively exploring emerging areas including block-chain, quantum computing and AI. In a fast-changing world, the urgent [...]

Financial Robustness of the Cerno Pacific Portfolio

By |2020-02-05T15:34:36+00:00February 5th, 2020|Asian/emerging Equities, Asset Allocation, Cerno Capital, Cerno Capital Posts, Other Posts, Regions|

The emergence of the novel coronavirus (nCoV) has serious short term consequences for growth and demand in China. In this journal we address the financial position of the stocks in the TM Cerno Pacific portfolio and their revenue sensitivity to a protracted downturn in activity within China. The situation has naturally led to parallels being drawn with the SARS epidemic of 2003-04. While the pathologies are linked the context exhibits marked differences. At this stage of endemic spread, some caution is warranted when extrapolating outcomes for nCoV. In our recent Investment Letter, Camus and all that, we discussed these points of difference. China was just 5% of global GDP in 2003 vs 17% today. The measures put in place by the Chinese government, most notably the quarantining of entire cities, are more severe and restrictive than applied during SARs. Beijing’s approach to nCoV is akin to corpus calloscotomy, or split-brain surgery, whereby the link between the two hemispheres of the brain is severed to prevent the spread of seizures from one to another in patients with severe epilepsy. A drastic measure which is effective in its targeted goal but risks long lasting adverse consequences. Aside from the tragedy of human [...]

Philips – Slimmer, lighter, healthier

By |2019-08-28T15:08:33+00:00August 28th, 2019|Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment, Global Leaders|

In 2017, Royal Philips, the Dutch company known for its lightbulbs and electric shavers, was reclassified into the Healthcare sector from Industrials, having undertaken a multi-year corporate transition to shift its portfolio from electronic goods to providing more personal and professional healthcare solutions. Once the largest European consumer electronics conglomerate, Philips was famous for its industrial and fundamental research, pioneering cutting-edge products from compact cassette recorders in the 1960s to integrated circuits and transistor technology in the 2000s. Many companies today share their roots with Philips, including the leading semiconductor equipment makers ASML and NXP; and Universal Studios, whose previous life as PolyGram (founded by Philips), was the largest global entertainment label in the 1970s. Despite being an innovation powerhouse, Philips made the classic conglomerate mistake of losing strategic focus owing to overdiversification, bloating its empire with unconnected low margin businesses. At its peak in the 1980s, Philips operated 13 major divisions and over 120 businesses across electronics, appliances, medical systems, entertainment, lighting, components and semiconductors, employing a massive workforce of 380,000 people. The indigestion was felt keenly when the company almost went into bankruptcy in the early 1990s. Its television tubes and lighting business was at risk of commoditisation [...]

Renishaw Negotiates a Soft-Patch

By |2019-05-29T13:32:21+00:00May 29th, 2019|Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment, Other Posts|

Renishaw, a UK engineering company held in the Global Leaders portfolio, held its annual Capital Markets Day on the 14th May in their Gloucestershire Innovation Centre, showcasing a selection of their machines. The company sells high precision measuring, gauging and calibration equipment to the high-end industrial and manufacturing sectors, enabling their customers to optimise processes and output, significantly reducing time and cost of production. Metrology has been core to Renishaw’s business since the founding of the company in 1973, when the original touch-trigger probe was invented by Sir David McMurtry, to test the integrity of finished aerospace components. Traditionally, finished parts are inspected at the end of the production line, if a defect is found, the entire batch is likely to be scrapped. For expensive components such as jet engine blades that cost northward of £250,000 a piece, this can become a costly undertaking. Exhibit: Renishaw Equator Gauging system next to a Fanuc Robodrill Source: Renishaw Renishaw’s value proposition to their customers is to integrate product inspection into the manufacturing process, tracking errors in real-time. Their probes and gauging systems are often found sitting alongside manufacturer’s machines on the factory floor. For instance, their flexible 5-axis probe (shown above), takes [...]

China Literature – Approved for Investment

By |2018-06-08T13:52:53+00:00June 8th, 2018|Asian/emerging Equities, Cerno Capital Posts, Other Posts|

Newly approved Pacific & Emerging strategy stock: China Literature operates China’s largest online reading platforms, comprising 48% of the total online & mobile reading market with 191mn monthly users. The company hosts a proprietary library of 10.1 million literary works spanning 200 genres, generated by its 6.9 million writers online, for consumption online. Bypassing the traditional publisher model, popular titles are monetised through paid subscriptions and, increasingly, through licensed adaptations into other media formats including film & TV, web series, animations, games, and audio & physical books. Leveraging its scale, treasure trove of intellectual property and distribution capability, the company has entrenched itself at the centre of China’s literary ecosystem, connecting writers, readers and adaptation partners. China’s online literature market is expected to grow at +31% CAGR to 2020, having achieved a +45% p.a. growth between 2013-16. The wider Chinese entertainment market is also seeing robust growth (+14% CAGR to 2020). The domestic Chinese box office is set to overtake the US this year, giving rise to strong demand for high quality content.

FAQs on the Cerno Global Leaders Fund

By |2018-04-26T11:31:58+00:00September 20th, 2017|Asset Allocation, Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, General Investment, Global Leaders, Strategy|

Fay Ren compiles a glossary of questions asked in recent investor meetings and the related answers. Would you discuss your idea generation screen? Our permanent source of ideas is a screened universe of companies. We narrow the global universe of publicly listed companies by applying liquidity, size and profitability parameters. We also exclude banks, energy and basic materials companies given the leverage inherent in the former and commodity price sensitivity of the latter two groups. This screen provides a list of approximately 500 companies which are qualitatively reviewed for Global Leader characteristics. This list is not restrictive and analysts are free to generate ideas from multiple sources, however the screen ensures there is always a ready supply of ideas to work on. Do you have positive ESG filters?   We anticipate holding our companies for very long periods of time and therefore look for those businesses which embrace sustainable practices. While we have not set ethical screens, we have found that our positive screening rules out many of the sectors most associated with ethical screening, for example, our growth criteria rule the tobacco companies out of consideration. Do you invest in utility companies? We do not invest in utilities as [...]

China Tech: From Cubs to Pandas

By |2017-10-17T10:34:04+00:00March 24th, 2017|Asian/emerging Equities, Bottom Up, Cerno Capital Posts, Other Posts|

China’s technology sector, once a discretionary purchase within a regional portfolio, now deserves scrutiny. China is a place where Google, Facebook and Twitter simply do not exist. Their analogues do. In their place stand Baidu and Tencent. Alibaba is a much more significant concern than Amazon. The digital economy is thriving. E-commerce penetration has overtaken the US, as has mobile payments, led by Alibaba (AliPay) and Tencent (WeChat Pay), where the value of transactions dwarfs the US by nearly 50 times. The army of Chinese netizens pay for almost everything from goods and services to bills and insurance via one of the two payment systems available on a smartphone. The internet is one area where foreign brands do not possess any competitive advantage over indigenous brands. China’s netizens have never become accustomed to Google, Facebook, and Twitter. This is in part due to regulation: popular social media sites are often blocked by the “Great Firewall”, and Google left the country some years ago over censorship disputes. The latest to fold has been Uber, which decided to sell its local arm to Didi Chuxing, a Chinese competitor, after burning through billions of its investor money. Nor is this just a matter [...]

Ham & Eggs – our view of the proposed merger of Luxottica and Essilor

By |2017-10-17T10:34:40+00:00January 26th, 2017|Cerno Capital, Cerno Capital Posts, Cerno Global Leaders, Other Posts, Strategy|

Luxottica is a new addition to the Global Leaders portfolio. Italian sunglasses & frames maker Luxottica and French optical lens maker Essilor have announced a €46bn “merger of equals”. When it is completed, it will represent one of the largest cross-border deals attempted by European companies, and the news was well-received by the market. The stock of both companies rose +8% and +12%, respectively, on the day of the announcement. The marriage makes strategic sense, considering the highly complementary nature of the two businesses, which are already leaders in their respective fields. Luxottica is known for their strong brand portfolio: 7 proprietary brands including Ray-Ban and Oakley, and over 20 licensed designer brands incl. D&G, Bulgari, Chanel. They also have a notable retail presence including Sunglass Hut, LensCrafters, Sears Optical, among others. Its size dwarfs the next largest competitor Safilo (also Italian) by almost 6 times. Essilor, who controls over a quarter of the global lens market, also houses over 13 brands including Essilor, Varilux and Crizal. In recent years, the two companies have been tentatively treading onto each other’s turf, evidenced by Luxottica developing lens finishing techniques in-house and Essilor acquiring sunglass maker Costa and moving into online spectacle [...]

Less Cream, More Expensive

By |2016-09-06T15:24:40+00:00September 6th, 2016|Asset Allocation, Asset Class Returns, Cerno Capital, Cerno Capital Posts, General Investment, Other Posts|

Cerno Global Leaders is a long term equity investment programme designed to identify and invest in high quality, defensible business franchises. We have been investing in an equal weighted portfolio of such stocks on behalf of investors since 2013. Results, to date, have been very encouraging and the portfolio has exhibited strong performance. The underlying process is very much tilted toward the research and identification stages with many possible candidates rejected along the way. To render a manageable list of candidates from the global equity universe of 68,000 listed companies, we apply a quantitative screen. To ensure sufficient liquidity, we screen for companies with a minimum market cap of US$2.5bn. We exclude highly leveraged sectors and deeply cyclical sectors such as banks, oil & gas, basic materials and mining. Positive profit histories and robust balance sheets are also requirements for inclusion. Note that past stock performance is not a criteria. This naturally gives the screened sample a high quality bias, which is reinforced at the next stage of the selection process. This leads onto the creation of an approved list of stocks, to be invested at the right valuation. With the universe defined, more rigorous qualitative assessment on selected candidates [...]