TM Cerno Global Leaders 2017-11-20T11:06:43+00:00

TM Cerno Global Leaders

TM Cerno Global Leaders Fund Information

The best prospect for outperforming the World Equity Index is to invest long term, in a concentrated, high conviction and low fee portfolio and transact only when necessary.

TM Cerno Global Leaders invests in global companies with sustainable competitive advantages delivering above average returns. Its target is to deliver performance in excess of MSCI World Total Return (GBP) 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.

For more information on TM Cerno Global Leaders please contact:

Tom Milnes – Business Development Director
Telephone – 02070 364126
Email – [email protected]

About Cerno Capital

Download TM Cerno Global Leaders Factsheets

The inaugural TM Cerno Global Leaders factsheet will be available in December 2017

Register for TM Cerno Global Leaders Factsheets

Please fill out the details requested below to receive the TM Cerno Global Leaders

Monthly factsheetInvestment LetterJournals

Key Investors Information

Please ensure you read the Key Investor Information Document (KIID) for the fund selected before making an investment decision. The documents contain important information including risk factors and details of charges.


TM Cerno Global Leaders Fund Manager

James Spence
James SpenceLead Fund Manager
James is a co-founder of Cerno Capital and lead manages a number of the firm’s collective and private portfolios. After qualifying as a chartered accountant in London (Coopers & Lybrand, 1989) he relocated to Asia. Between 1991 and 2004 he worked as an equity analyst, head of research, and latterly as an equity strategist at WI Carr, Paribas, HSBC and UBS, based variously in Hong Kong, Singapore and Jakarta. James graduated from the University of St Andrews, Scotland with an MA in Philosophy & Logic in 1986. James is a Member of the Chartered Institute for Securities & Investment.

Download TM Cerno Global Leaders Application Forms

So that we can provide you with appropriate content, please select one of the two options:


Download Cerno Capital Prospectus

So that we can provide you with appropriate content, please download the Cerno Capital Prospectus.


Latest Investment Letter by James Spence

Stock markets could fall 10% next week.

This is a perfunctorily true statement but not worth tuppence as a prediction. For it is true every week of the year. 2017, so far, is an unusual year in that it has not featured a correction of 5% or more in world stocks.

It remains our view that the chief risk in front line asset classes is the gravitational pressures exerted by valuations which have crept ever higher in the past 5 years. A correction in the equity market would have the effect of clearing the air. We are of the view that it would be unwise to be active selling during such a correction.

For, in the lee of any correction, the proximate fundamentals will remain shaped by a picture of synchronous global growth, rising aggregates of industrial production, recovery in Europe and rising market shares of the world’s best companies in many industries. None of this plausibly presages a recession in corporate profits, in the near future.

Other fundamentals to keep well in mind are interest rates and inflation.

We are in the upward swing of an interest rate rising cycle and ultimately rates may do for the market but not, we surmise, for a while. It is a matter of conjecture how far the rates cycle will go. Consumer confidence and activity will be watched avidly for signs of fatigue. All the world’s main Central Banks have effectively become “dual mandate” even those that do not operate under the constitutional imperative to promote growth and control inflation. We continue to believe inflation will creep back into the picture. The main measures of inflation remain abeyant even if conditions precedent is in place. Output gaps are being progressively closed: Germany and Japan are already closed, and UBS economists estimate that it will close in US by the third quarter of next year.

It is dangerous to be complacent on this front as the prospect of higher inflation is not front of minds and therefore, were the data to trend that way, it would have a pronounced effect on relative performance of the main asset classes. The direction of travel within our clients’ portfolios is to bulwark inflation protection and add assets which will plausibly respond well to a flick up in bond yields.

Looking around the world as the year draws to its end, we note the exceptional performance of Asian markets which have been as hot as woks in a busy restaurant. Our portfolio engagement with this was segmentary via significant allocations in India and Japan: two markets that are far apart in geography and with few if no confluent themes. Also relevant to performance has been the Asian subsidiaries and Asian customers of constituent stocks in the Global Leader strategy. The Asian dimension of these businesses are available at lower implied earnings multiples than pure plays. We note that Unilever Indonesia – an example of a pure play – now trades on 48x forward earnings.

Drilling down into the detail it is worth noting that whilst overall earnings estimates within that region are running strongly positive in aggregate, there are more Asian sectors on an earnings downgrade path than an upgrade. Sector fortunes are far from uniform. The better areas are concentrated in Technology Hardware and Software.

On the hardware side, we are in years of plenty for chip makers with demand progressing from multiple sources: examples being autonomous vehicle development, the Internet of Things and of course the smart phone. Samsung Electronics enjoys the happy coincidence of leading in both microchips and screens and sustaining a leading presence in smart-phones.

When it comes to Asia and software, most heads turn to the “BAT” stocks: Baidu, Alibaba and Tencent. However, a wider phenomenon is at work. Expenditure on software by companies in the US now eclipses that on capital goods. There are many ways to gain exposure to this: via smart adopters of technology as well as providers themselves. We own Oracle in client portfolios as it has leadership in cloud database provision to companies. Oracle is no longer the noise in the software industry as other more consumer oriented players are operating on larger scale at the commodity end of the market for cloud enabled services. However, Oracle remains the leading player in the business segment via the tool set it places around the databases. Oracle’s customers include Amazon itself and SAP.

In an analogous development, within the payments arena, all the buzz is concentrated around Financial Technology (FinTech) start-ups and smartphone enabled platforms. Most of these piggy-back on existing credit card platforms. VISA makes twice the money from a phone activated payment than one via a card.

We have just finished reading Niall Ferguson’s excellent new book The Tower and the Square in which he analyses the multi-fold tensions between hierarchical structures (such as governments) and the disruptive effects of networks (starting with the Gutenberg press and running up to the advent of Facebook). Ferguson is entertainingly caustic about the true intentions of Facebook and Alphabet (parent of Google). He points out that they have been masters at turning their customers into the product and their monopolistic intentions. The Brins and the Zuckerbergs of this generation learnt at the knees of Gates and Jobs: all share common instincts.

At some point, it may prove unwise to overweight the new monopolists. For now, the Tech Titans can try to dismiss the attentions of EU Commissioner Margrethe Vestarger as “political crap” (Tim Cook, Apple CEO on CBS 20/11/16), but what if the US’s own Department of Justice took an interest in their practices? The notion that anti-competitive behaviour cannot take place in tandem with (favourable to the consumer) price declines warrants re-examining. There is ample possibility of giant missteps by the tee shirted capitalists, especially given their hard-to-credit dyslexia on matters of editorial responsibility and blind spots toward the negative aspects of the “communities” they help build.

On the one hand, capitalism looks very well. Leading companies have become very adept on so many fronts. On the other hand, trends now well underway look to undermine wider society. America, for example, is already home to many failing communities. 10 years from now, when we have had successive waves of automation, AI and robotics, business owners with access to capital markets will be richer still and the rest who are not engaged in servicing their whims may be very sad indeed. Some form of income re-distribution will be needed.

A letter detailing some changes to portfolio manager responsibilities can be found on the page that follows. Please also reference our new website which has been developed by Adam Hawkins who has joined from Clyde & Co to run the firm’s infrastructure.

By | November 10th, 2017|

TM Cerno DDQ

If you would like to receive our DDQ, please fill in the following form:

TM Cerno Global Leaders – Platform Availabilty

TM Cerno Global Leaders Podcast

TM Cerno Global Leaders Key Contacts

Tom Milnes
Tom MilnesBusiness Development Director
Tom joined Cerno Capital to help with the firm’s intermediary client relationships. Before joining Cerno, Tom was Business Development Director at Investec Wealth & Investment, where he was responsible for intermediary relationships in London. Prior to this, he had roles in investment sales at LV Asset Management and Rathbones. Tom also spent five years at BAE Systems to his previous career in finance, most notably as a lobbyist in Washington DC. Tom graduated with an MA (Hons) from the University of Edinburgh in 2001, holds a Licence d’Histoire from the Université Grenoble Alpes and is an Associate member of the CISI.
Olivia Martin
Olivia MartinClient Relations and Business Development
Olivia is a member of the Client Relations and Business Development team at Cerno Capital. She has a particular focus on client relations and in her role she assists with various forms of business development with all aspects of existing and prospective investor contact. Olivia joined the Cerno Capital team in July 2016, having previously worked as an Education Consultant for an Education and Tuition Consultancy firm. Olivia is a graduate from Durham University where she studied Geography with additional modules in Business, Accounting and Finance.

FAQs on the Cerno Global Leaders Fund

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 the characteristics of the companies and the industry do not meet our criteria. While the companies offer attractive cash generation prospects there is often a lack of controllable growth and levered balance sheets. The parochial nature of the provision of utilities also means a lack of companies of a truly global scale. Finally, we are uncomfortable investing in circumstances where returns are dictated by governmental regulation.

Would your sector exclusions change if the characteristics of the sector changed?

Our exclusions reflect issues we believe are endemic within the structure of the industry. For example, the leverage component within the modern banking model. As such, should these issues no longer be relevant, a substantial shift away from the status quo is likely to have occurred. Nevertheless, we endeavour to not be biased by the past. As such we try not to judge a sector on its past characteristics and would give due attention should circumstances change. Often apparent sea changes are only superficial -> mining companies for example where CEOs appear to have ‘found religion’ and instigated capex discipline. We perceive this as largely a function of the desires of the current cohort of shareholders and when growth is back on the table in China a new group calling for expansion is likely to drive a mean reversion in behaviour.

Please give an example of where you might adjust weights within your discretion as a result of a style trend in markets?

Most likely this would happen when a group of stocks start to rise strongly in sympathy in response to some new growth spurt. In such cases we might see share prices rise beyond what is merited as fund managers crowd into a theme. If the rest of the market was becalmed, we might consider a discretionary rebalance within the 20% limit. A 20% relative move (based only on portfolio % weights) triggers a hard rebalance, that is no discretion.

What is your approach to corporate governance? I note you own Samsung Electronics. 

Management integrity, including corporate governance, stands as a central tenet in our investment philosophy. Our comfort in the ability, and tendency, of management to act in the best interests of all shareholders helps to navigate around investments which may ultimately destroy value. However, we are also sensitive to the cultural pathways that may have led to the formation of certain ownership structures, for example, in the case of South Korea, the chaebol. Therefore, while the complexity of the Samsung’s ownership is a concern we believe the direction of travel is more pertinent. In this regard, the signs have been encouraging with increasing cash returns to shareholders and the recent cancellation of treasury shares. We are comfortable in our holding but continue to keep a close eye on developments.

From the stocks on the ‘approved not invested’ list, how do you determine what goes into the portfolio?   

The approved list is already longer than the opening portfolio so not all approved stocks will be owned in the early phase of the fund’s life and we have specified we will own only 25-30 over the long run. We are comparing business models, growth profiles and valuations. Selection becomes easier if we gain a conviction that a given business model and growth profile is somewhat undervalued. This is not often the case in current markets but companies do stumble sometimes and the sell-side gets very exercised about it. As we have done our work and know we want to buy then we can be in like Flynn. When companies miss their profit, estimates can often be an opportunity for us.

What is your sell discipline?

A stock will be sold if it fails one of our criteria. Novo Nordisk was sold when we observed new entrants undermining the company’s competitive position. Our equal weighting discipline results in stocks being trimmed as their relative valuation increases. A stock will be trimmed automatically if it crosses a +/-20% threshold versus its target weighting.

How do you distribute coverage of the universe? Are you all generalists? 

Yes. I am a great believer in generalisation. It means we can have a broad debate about all the stocks. We have notional coverage where the stocks are split roughly equally between the four of us but we rotate coverage every 18 months so that there is no ‘ownership’. This makes sense as we discuss all holdings and the format for that discussion is not hierarchical. It also means that new angles and emphasis take place. When I was a sell-side analyst, I got very tired of the way in which analysts would corral their unique authority around their stocks. All of the investors I have admired through my career have been generalists.

In terms of new idea generation, it’s much more entrepreneurial. The quant screen reduces the global equity universe to a long list of 550 names based on consistency of margins, profitability and diversity of sales. We, between us, have a free hand as to what to investigate but a basic screen is then presented to the group and we decide which ideas to pursue. We meet weekly to formally work through these ideas.

What did you do during the Sept-Dec 16 period, do you adjust your portfolio for different market conditions? 

2016 was the year where value came out of the closet and trumped growth. As I think back, my understanding of this is that China re-upped their economy and the collateral effects fanned out over the commodity complex and materials stocks. That resulted in some distinct performance across stocks so labelled. We noticed, at that time, that PPG, Givaudan, Praxair and Novozymes were being sucked up by a mix of sector and style effects. All these companies are labelled ‘Materials’ under the standard, broad sector GICS classifications. Later in the year we were scaling down some of these holdings as they had deviated 20% above target weights. We recognise that styles may operate across markets and whilst this strategy is correctly construed as a ‘quality’ strategy, we are in our minds style agnostic. We are looking to buy great businesses at fair prices.

What is the geographic breakdown of the portfolio? 

Our investment process espouses companies over countries. We therefore focus on the geographic revenue breakdown as an indicator of the global scale of the businesses we invest in, as opposed to the country of domicile. On this basis, the portfolio exposure is roughly 40% North America, 20% Europe and 40% Asia, Latam and RoW.

Do you do attribution analysis for your portfolio?

Yes, we do attribution analysis in the standard format, but can to dissect the portfolio in other ways upon request.

Do you undertake stress tests and what would they show to be the risks taken versus MSCI World? 

We run stress tests on the portfolio to understand likely outcomes in extreme events. Given the ‘quality growth’ bias of the Global Leaders, scenario testing indicates that the portfolio is expected to underperform a momentum driven bull market, and provide some relative protection against a bear market. A test resembling the 2008 Lehman Crisis, indicates less than 50% capture of the downside, with the ability to participate strongly in the subsequent recovery. Short-term shocks to the equity market such as the US Debt Ceiling in 2011, according to scenario tests, show the portfolio providing some relative protection. In a style driven environment, the Global Leaders would lag a rally in value due to its higher than market valuation (as it did in late 2016), but will benefit from a return to growth. As a global portfolio, any UK centric woes would have little impact on the portfolio, with weakness in the Sterling typically a net positive for the portfolio.

Bond-like equities – impact of bond yield on the portfolio?  

All our companies are characterised by a positive growth dynamic which is lacking in bond proxy equities.

What has been the turnover to date? 

The annualised turnover since Oct 14 is 14.5% for the GLS portfolio. During this period, we added 11 stocks and sold 3, noting that we were still building the portfolio to its 25-stock target.

What is the volatility on your portfolio?

Close to that on the world equity index. It is not a stat that we would normally be concerned about nor has information for our investment process which is all about driving outperformance in the long run.

What is the yield on the portfolio? 

The current dividend yield on the portfolio is 1.7% net. We like companies that distribute dividends as it is an indication of creating value for shareholders.  However, the portfolio itself does not adhere to a dividend target.

What is your stance on MIFID II? 

It has cost money but we are ready. We will be absorbing research costs at the firm level.

Will costs be taken from income? 


Is there a Dilution Levy?

The prospectus is at draft stage. It would be normal to include one but we have not made a final decision on this.

Who are your seed investors? 

The cornerstone investor is a family who we have worked for since 2009. They have an historical ownership in Nestle which dates back over 100 years and asked us, in 2012, to build out a portfolio that would allow them to gently diversify. They are joined by 4 other families that we have also been working for many years. They are all investors in the strategy since 2013.

Fund Facts

Fund Size £57mn
Fund Launch Date 01/11/17
Legal Structure UK OEIC (UCITS)
Dealing Frequency Daily
Suitable for SIPPs/ISAs/JISAs Yes

Available Share Classes

Name Class A Class B
Cerno Capital AMC 0.65% 0.55%
Investment Minimums £5,000 £10mn

Risk Data

Net Equity Exposure*
Gross Equity Exposure*
Short Equity Exposure*
Long Equity Exposure*
Best Month*
Worst Month*
Sharpe Ratio
Calmar Ratio
Upside Capture*
Downside Capture*
Maximum Drawdown*
Annualised Volatility*
Beta (vs World Equity Index)*

Fund Codes

ISIN SEDOL Bloomberg

Fund & Risk Rating

ARC 2015 3D Awarded


CERNO CAPITAL’s website contains certain information about its approach to providing investment management services but does not provide specific investment advice and is presented for informational purposes only. It does not represent that the services described on the site are suitable for any specific investor. You are advised not to rely on any information contained in this site in the process of making a fully informed investment decision. Instead, you are urged to base investment decisions upon a thorough investigation and to obtain all necessary professional advice.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution, publication or use would be contrary to local law or regulation or in which CERNO CAPITAL does not hold any necessary registration or license. Individuals or legal entities in respect of whom such prohibitions apply, whether on grounds of their nationality, their place of residence or on other grounds, must not access or use this website.