Our aim, within the context of the Global Leaders Fund, is to own great companies over multiple market cycles. In this way we operate over a timeframe where competition is scarcer, allowing us the best opportunity to outperform global markets. This overarching objective is underpinned by three concepts: growth, long term relevance (sustainability of returns) and financial soundness. All three are crucial in delineating the leading businesses we want to own. Companies that we can employ in a concentrated, low turnover portfolio and sleep comfortably at night. Growth is perhaps the easier to define: does the company have the tools at its disposal to compound earnings at an attractive rate over time. Relevance and sustainability has sharply diverging meanings depending on who one asks. Our preference is to cast the net as broadly as possible: simply, a company whose current earnings to do not borrow from its future earnings. This concept is wide ranging and influences the fund exclusions. Tobacco for example, where new customers must be found to offset the natural elimination of the existing base by the product itself. Old energy with the extensive disruption from renewables already in full swing. Banks, where inherent leverage hangs like a [...]
Conducting big business in the decades following the industrial revolution normally entailed the marshalling of labour and resources in a profitable sinecure. Fur trappers and tin miners, agriculture and energy, railroads and steel all fit this model. These industries persist today but are becoming scarce in the pantheon of very top companies measured by market capitalisation or economic value addition. Labour has mobilised, a thicket of laws exists to prevent excessive exploitation and monopolies of international scale are prohibited. Only perhaps in the world of software and social media have we seen the kind of recently accrued market share power that breeds exploitative practices: Microsoft’s dominance of operating system software is a matter of historic fact and Facebook’s control of the network effect across its platforms are prime examples of predatory corporate behaviour: rabid until checked. Outside these large and unusual cases, successful companies conducting business across multiple continents need to balance of standardisation against customisation. Standard so often entails stand-still which is a death curse for companies. At the other end of the spectrum, few businesses can adopt a fully bespoke offering and hope to grow beyond their artisanal roots. There is another category, companies and sometimes just one-person [...]
Newly approved Global Leaders stock: Chr. Hansen is a leading global bioscience company engaged in the development of natural ingredient solutions for the food, nutritional, pharmaceutical and agricultural industries. The group’s products leverage its core competence in microbial strains, or ‘good bacteria’, enzymes and natural colours. 60% of group sales are derived from microbial cultures (the majority of which are starter cultures for cheese and fermented milk), 20% from human and animal probiotics, and 20% from natural colourings for the food and beverage industry. The group is uniquely positioned at the convergence of multiple consumer trends: the desire for natural ingredients, the removal of antibiotics and chemical preservatives in the food chain, health and wellness and the huge potential of the human microbiome. Over the past 10 years the group has delivered an admirable combination of expanding margins and organic growth of 10% p.a. Concurrently return on capital has expanded from 4% in 2010 to 16% in 2016/17 driven primarily by improved asset turnover.
2017 Performance Summary Performance summaries for the main investment strategies, all numbers after fees. Note past performance is not a guide to future performance. Global Multi-Asset TM Cerno Select and its sister fund Cerno Unconstrained are global strategies investing across multiple asset classes with an unconstrained approach to asset allocation. The return target is UK CPI +3% by investing in an approved range of investment vehicles, including direct securities, passive funds and specialist active managers. Fund/Strategy 2017 3 Year Inception** Annualised since inception** TM Cerno Select +8.0% +18.9% +62.2% 4.9% CPI +3%* +5.7% +14.1% +71.5% 5.5% *Dec-17 CPI calculated using 3.0% YoY forecast**Strategy inception October 2007: EF Global prior to September 2013, TM Cerno Select thereafter Global Equity The Global Leaders Equity Strategy invests in global companies with sustainable competitive advantages delivering above average returns. Its target is to deliver performance above that of the MSCI World Total Return (GBP) Index on a 3-year rolling basis. The fund will hold 25-30 securities, equally weighted, selected according to a distinct investment thesis that accents industry structure, the sustenance of return on capital and secular growth. [...]
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 [...]
On November 1st, Cerno Capital will launch a concentrated, low turnover, global equity fund, TM Cerno Global Leaders. The strategy has been active in client accounts since 2013 and target 25-30 holdings are identified via proprietary research from our investment team. In the captioned podcast, Lead Manager James Spence explains the underlying thinking and portfolio structure and protocols which we believe make it a unique offering in the global equity sphere. Listen to the podcast here, or using the player below.
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 [...]