IFSL Pinnacle Global Equity Income
A core global equity income fund which invests in all types of businesses across the company ‘Life Cycle’. The fund aims to limit exposure to broad generic risks such as style, sector or geography and maximise its exposure to stock picking. The team seeks to exploit a number of different inefficiencies in the market. It targets an income at least 20% higher than its global equity benchmark (MSCI World Net Total Return Index).
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Joseff Thomas, Co-manager Joseff Thomas initially worked at Ignis and then joined Royal London Asset Management as an analyst. He joined the Global Equity team in 2018. Joseff also helped develop the team’s proprietary tools. Joseff has a Bsc (Hons) in Economics from the School of Oriental and African Studies in London. He is also a CFA charterholder.
Niko de Walden, Co-manager Niko de Walden initially worked as an analyst at Janus Henderson before he joined Royal London Asset Management. Niko co-managed portfolios at Royal London for over seven years, including the Global Equity Income fund and the UK Dividend Growth fund. Niko holds a BA in Classics from the University of Oxford. He is a CFA charterholder.
Joseff Thomas, Co-manager Joseff Thomas initially worked at Ignis and then joined Royal London Asset Management as an analyst. He joined the Global Equity team in 2018. Joseff also helped develop the team’s proprietary tools. Joseff has a Bsc (Hons) in Economics from the School of Oriental and African Studies in London. He is also a CFA charterholder.
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Niko de Walden, Co-manager Niko de Walden initially worked as an analyst at Janus Henderson before he joined Royal London Asset Management. Niko co-managed portfolios at Royal London for over seven years, including the Global Equity Income fund and the UK Dividend Growth fund. Niko holds a BA in Classics from the University of Oxford. He is a CFA charterholder.
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Investment process
The team believe markets are inefficient and that a disciplined investment process, focusing on business fundamentals, will win out over the long term. The entire process is built around the idea of the corporate ‘Life Cycle’. The team believe that different fundamentals matter for which stage of the Life Cycle a business is in. For example, what matters for an accelerating growth company is very different to what matters for a turnaround business.
The fund will own many different types and styles of business, which are at completely different stages of the corporate life cycle. In some ways this is quite unusual, as other managers often prefer to stick with a certain type of company or style (value, growth, quality etc.). The team is willing to own any type of stock from a fast-growing, early-stage start up to a deep-value recovery play. However, they believe the fundamentals for these different types of company are very different.
There are eight different market inefficiencies which the team seek to exploit.
- Accounting versus economic reality – accounting can obscure economic reality
- Capital allocation is underassessed – the importance of good capital allocation by management is overlooked by most investors
- Management interests are often not aligned with shareholders
- Narrative-driven investing – investors often chase good stories and forget the fundamentals.
- Short-termism – Misaligned perspectives create opportunities for long-term investors
- Poor research coverage of less liquid stocks
- Poor quality third-party ESG data
- Underappreciated ESG transitions
The team begin with a global investment universe of 5,000 stocks. They use an economic return framework to standardise accounting and remove distortions.
Each company is then classified into one of the five business life-cycle stages. These are: Accelerating, Compounding, Fading, Mature and Turnaround.
Each company is then ranked in its respective category by their Shareholder Wealth Creation screening tool. It has been refined over more than 20 years of market experience. The result of their work is a refined list of 250 stocks with both strong evidence of wealth creation and attractive valuations. These stocks form the basis for the team’s portfolios depending on their different requirements. The final portfolio has between 50-70 holdings.
Risk
The fund has a typical tracking error range of 3-7% and the team seek to maximise information ratios. Fund position sizing is determined by conviction.
The fund applies a ‘triple diversification’ approach at the sector, geographic and Life Cycle stage. Portfolio weights typically remain within +/- 5% of benchmark positions. The fund’s relative risk is well managed, while the willingness to invest across styles mitigates a lot of risk relative to the benchmark. However, the fund will always be highly correlated to global equity markets.
ESG
ESG and climate factors are fully integrated into the investment process. External datasets are used in the initial quantitative layer but the team often find them incomplete and inconsistent. The team’s own qualitative research allows for a more complete understanding, taking into account important context which may be missed in the external providers data.
ESG factors are also used when estimating the worth of an investment today based on its expected future cash flows, with negative scenarios integrating downside risks such as carbon taxes, for example, in their valuations.
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