Ninety One Asia Pacific Franchise is a concentrated high conviction fund investing in quality growth companies. More than 55% of its value in its top ten holdings and the total portfolio only comprises around 30 stocks. Most of these are larger companies. The fund’s emphasis is on finding exceptional businesses through detailed fundamental research. It typically ignores more cyclical and lower quality parts of the market such as energy, materials, telecoms and utilities.
Charlie Dutton took the fund over in November 2017. He is a highly experienced investor in Asia and his initial performance with Ninety One Asia Pacific Franchise has been excellent. This is a truly active, high conviction fund and is an interesting option for investors who prefer a quality growth approach and want a fund which ignores the lower quality end of the market.
Ninety One is an independent, active global asset manager, managing more than £120.8 billion* on behalf of clients. Established in South Africa in 1991 as Investec Asset Management, the firm started offering domestic investments in an emerging market. In 2020, almost three decades of organic growth later, the firm de-merged from Investec Group and became Ninety One. Today, the firm offers active strategies across equities, fixed income, multi-asset, alternatives and sustainability to institutions, advisors and individual investors around the world.
*as at 30.09.19
Charlie Dutton has more than 20 years Asian equity investment experience. He began his career as an analyst with HSBC in 1997 and was subsequently head of research for Asian equities at JP Morgan. Prior to joining Ninety One, Charlie was a portfolio manager at Coupland Cardiff. Charlie has a Bachelor of Science degree in Geography from Durham University and is a CFA Charterholder.
The research process focuses on identifying companies that possess exceptional characteristics. The philosophy is that the market under appreciates the ability of high quality companies to earn excess returns for long periods of time. These rare businesses are able to deliver consistent growth in intrinsic value.
Manager Charlie Dutton is part of the quality investment team at Ninety One. Equities are screened for liquidity (the ease with which shares can be bought and sold) and quality. Small companies with a market capitalisation of less than $2bn are removed, as are lower quality sectors and industries. This reduces the universe to just 300 stocks. From this list, ideas are generated from screens, internal research and external sources. The team actively covers around 100 stocks with in-depth fundamental research. From this list between 25 and 40 stocks make it into the final concentrated portfolio.
Companies are assessed through the standard framework which the quality team uses. This examines a company’s business model (competitive advantage sustainability and long-term profit growth), financial model (balance sheet strength, quality of earnings and cashflow conversion) and capital allocation (management track record, governance and alignment).
To be considered a franchise and have the chance of making it into the portfolio, a company must have the following characteristics: hard-to-replicate enduring competitive advantage; dominant market position in a stable growing industry; low sensitivity to the economic cycle; healthy balance sheets and low capital intensity; and sustainable cash generation and effective capital allocation. Growth and valuation are also critical in assessing which stocks will make it into the portfolio.
All ideas are presented to, and debated by, the whole team ensuring a rigorous analysis. Stocks are carefully monitored and are sold once they have reached their full valuation, if a better idea emerges or if the investment case is no longer applicable.
Ninety One Asia Pacific Franchise fund is extremely concentrated, so performance is reliant on the manager picking the right companies. Risk is considered to be permanent loss of capital rather than performance relative to any particular benchmark. Position sizing is determined by risk and reward - reward being primarily determined by the valuation.
Charlie Dutton, manager of Ninety One Asia Pacific Franchise, tells us why Asia is no longer a play on global growth, but is now full of quality companies that can grow no matter what the economic environment. He also discusses the increasing opportunities in ASEAN countries and explains why he sometimes invests in firms listed outside the Asia...
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