CT Global Extended Alpha

CT Global Extended Alpha is a quality growth fund that buys high return on capital businesses experiencing sustainable structural growth. It has a 130/30 structure, which allows the manager Neil Robson to extend investors’ potential returns by buying stocks he expects to do well and also looking to make money on stocks he expects to do badly (shorting). Neil describes this as “lining up on the starting grid for a motor race with an engine 50% bigger than everyone else’s”.

Previously Threadneedle Global Extended Alpha

Our opinion

This is a hidden gem in the global sector. CT Global Extended Alpha fund has consistently delivered excellent performance for years and yet it remains relatively small. When implemented correctly, the 130/30 fund structure can help to magnify a good team’s performance and give investors more bang for their buck. The fund has benefited from its quality growth style being in favour in recent years, but even so the long-term performance has still been very strong.

Fund manager

Neil Robson is head of global equities at Columbia Threadneedle. He joined the company in 2011 and became a manager on this fund in 2012. Neil previously worked at Martin Currie, Barings and Citibank. He was head of global equity at Pioneer between 2003 and 2009 and is extremely experienced, having been working in the industry since 1986.

At any time in the marketplace, you can be both positive on the market and find good short opportunities. So, for me, a long/short strategy is nirvana.

Neil RobsonFund manager

Investment process

This fund is a 130/30 fund. This means the fund can employ leverage to invest more than 100% of its capital. So the manager might invest 130% ‘long’ (in companies he likes) and 30% short (companies who shares price he expects to fall). This would leave net long exposure of 100% (i.e. still around the same net exposure as the market).

Manager Neil Robson says this structure is a fund manager’s dream. The ability to short some stocks means valuable research is not wasted when the team realises a company is in trouble and it gives it another opportunity to add alpha.

The fund’s style is quality growth. The approach is to identify the best companies first and to worry about valuation later. Businesses in the fund will have a strong market position and a competitive advantage. The fund earns a high return on capital, be sustainable and have good growth potential. Typically it will have high margins and high returns on capital.

The manager doesn’t care a great deal about macroeconomic conditions and GDP growth, but he cares very much about the industries in which the companies operate. Potential stocks are subjected to a Porters five forces analysis of the industry the fund operates in; threat of new entrants, power of customers, power of suppliers, threat of substitutes and industry rivalry.

An initial screen reduces the initial universe of 5,000 down to 700 names on the long side. The manager only looks at businesses with at least a $2bn market and those which have demonstrated consistently high returns. Ideas come from a wide range of sources.

Promising ideas are brought forward for rigorous research and debate and a weekly stock meeting. The initial emphasis is on what will drive the future returns on capital, margins, revenue growth and capital allocation of the business.

Valuations are typically set over 2 years, although Neil anticipates holding a company for longer, as long as the investment case remains intact.

ESG

ESG - Integrated
Columbia Threadneedle has a firm-wide approach to considering ESG factors. It has a universal process embedded across all its strategies which provides a proprietary ESG score for each stock. This is performed by the independent Responsible Investment team that prepares its own detailed analysis on each stock from an ESG perspective. By having a specialist team dedicated to this, the analysis drills down on every aspect of ESG and the team is not distracted by financial factors.

Industry standard frameworks, such as Sustainability Accounting Standards Board (SASB), are used, as well as guidance from the Taskforce on Climate Related Financial Disclosures to help build models. This score is then provided to the equity analysts and manager who use it alongside their fundamental analysis to assess companies. The score will also be used as a basis from which to engage with the respective companies on any issues identified.

As this fund can take both positive and negative views on a stock by being long or short, Neil uses the ESG scores to support the investment case for those in the long book.

Risk

The fund is well diversified with around 70 long holdings and 25 short holdings. Typical stock weightings are +/- 4% versus the benchmark and typical sector weightings are +/-10% versus the benchmark. Regional weightings are +/-15% versus the benchmark. The fund is close to fully invested and cash is generally less than 5%. The fund can underperform when there are value rallies.

Because the manager often short the opposite to what he buys on the long side, the fund is potentially vulnerable to a sudden shift in market sentiment. However, the manager is very aware of potential risks.

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