GAM Star Disruptive Growth

GAM Star Disruptive Growth is a global equity fund looking for companies across a variety of industries which are set to benefit from the disruption that the next wave of technological change will bring about. Manager Mark Hawtin has a strong background in the technology sector, and uses this to identify themes of technological change, as well as find those firms that embrace these changes at the core of their business. The cross-industry approach means this is not just a tech fund.

Our opinion

Technology has driven substantial change in the past few years but investing in pure tech companies can often be a rollercoaster ride. GAM Star Disruptive Growth fund neatly mitigates this by investing in firms set to benefit from embracing technology, but ensuring a diversification of factors behind the portfolio’s overall success. It is a fund positioned to be on the right side of change, but without betting the house on one dominant theme, making for a compelling offering in the global sector.

Fund manager

London-based manager Mark Hawtin has worked at GAM since 2008. He is the investment director responsible for running global long-only and long/short funds, investing in the disruptive growth and technology sectors. Prior to joining GAM he was a partner and portfolio manager with Marshall Wace Asset Management, running one of Europe’s largest technology, media and telecoms hedge funds since 2000. Previously, he spent seven years at Enskilda Securities, initially as head of sales, before taking responsibility for the international equity business, overseeing pan-European research and trading activities and around a quarter of the investment banking staff.

Mark HawtinFund manager

Investment process

GAM Star Disruptive Growth fund invests in businesses that have technology at the core of their operations. Manager Mark Hawtin believes we are in the fourth phase of the digital revolution, with the interconnected world driving huge change within businesses. Companies that make it into the portfolio will use technology to drive their business forward and become leaders in their industry through the exponential growth that digital disruption offers. This will come from a variety of sectors and industries, not just technology companies, to create a risk balanced portfolio that is not driven by one factor.

To build the portfolio, Mark starts by identifying the themes that will lead to industry disruption. He will use a variety of sources for this such as trade journals, global news outlets and the network of companies and industry leaders he has built up throughout his career. He will apply this knowledge base to the investment universe and identify which sectors are likely to see most disruption and where the winners and losers are set to be.

Once he has identified broad ideas for companies for contemplation, Mark, alongside the analyst team at his disposal, will go about analysing them. This will involve a large number of company meetings – Mark does around 200-250 meetings a year to help with insight and analysis. The team will also do a lot of modelling on the companies based on fundamental research - going through the financial statements to make forecasts about the potential future value of the company based on different scenarios. Specifically, the team will forecast a company’s revenues for the next five to ten years, which are adjusted every quarter when new figures are released. The modelling will involve seeing what could go wrong or right for the company, and the sensitivity to each scenario, allowing the team to put a risk-adjusted value onto the company.

The portfolio will then be constructed with their best ideas. Mark only wants a maximum of 40 names to allow each idea to make a material impact on the performance. Position sizes in the portfolio are built around a variety of factors such as the stock’s upside potential, what damage a worst-case scenario would do to the business, and the liquidity of the shares.

Mark is also unconstrained in his approach and will happily not own some large index constituents. He has had a zero weight in Apple in the past, for example, as he believes it is too hardware dependent, and hasn’t owned Tesla on valuation grounds.

ESG

ESG - Integrated  

Mark is conscious that this fund has a strong technological tilt, and therefore focuses on certain factors when analysing ESG issues. This includes topics such as data privacy and security, corporate governance and human capital management, as well as looking for opportunities for disruptive firms on environmental and social issues. When analysing potential investment companies, Mark will look at the material ESG factors that are most relevant to them. The impacts of these are then factored into the stock analysis, to see whether there are any long-term impacts that could affect the health and stability of the company and therefore the investment case. This is measured through a proprietary scoring system, with multiple inputs across a variety of different issues. The system uses a mixture of in-house quantitative work, third-party verification, and a qualitative overlay. The latter is provided by GAM’s Governance and Responsibility Investment team to provide input from a wider philosophical point of view. All of this enables it to score companies to see what issues they bring forward and whether this affects the investment case. The fund’s tech focus also means there is a natural tilt away from traditional ESG laggards such as oil and gas and mining companies.

Risk

There is an independent oversight team to help monitor risks within the fund, and monthly meetings with Mark to verify them. There are some sectors that are likely to feature strongly such as software, and media and entertainment. Other sectors, which are unlikely to be technologically enabled such as real estate and mining, are unlikely to be included in the portfolio. The fund will therefore have a growth style bias and, should the market revert to a value driven rally of cyclical companies, the fund is expected to underperform.

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