Three Minutes With James Hanford, Analyst and Portfolio Manager at COMGEST Private credit, PIMCO, non-bank lending, loans, LTAFs

Find out more about the COMGEST Europe ex UK Strategy

What are the sectors or areas you are finding opportunities in?

James Hanford: “We are sector agnostic investors, meaning that for us, we take a bottom-up company specific approach. In Europe, we have some outstanding consumer brands, including names like Hermes, Ferrari, and L'Oreal. These are European brands with a great reputation, and long-term and strong demand for their products. There are a lot of opportunities in the life science sector. Life science is a broad term that could refer to names like Novo Nordisk, which has a great position in diabetes and obesity care; or more niche names like Straumann, a leader in dental implants.”

How is the current market backdrop impacting the outlook for growth companies?

James Hanford: “We aim to invest in companies that do not depend on the market backdrop. We look for companies that can grow in those double digits thanks to idiosyncratic growth drivers like aging populations or digitalisation. That said, the current market conditions are not a tailwind to growth. However, if you take 2022 and 2023 as an example, we have been able to have solid double digit profit growth in both of those years despite very difficult market conditions.”

“On average, companies in our portfolio have existed for more than 90 years”

What are the misconceptions about quality growth in 2023?

James Hanford: “When people think about growth companies, they often think about companies that are early in their lifecycle with an exciting new product or new business opportunity. These companies often will be dependent on external financing, market conditions and good debt and equity markets. We are quality growth investors. These are businesses that have existed for a very long time. On average, companies in our portfolio have existed for more than 90 years. They have demonstrated a history of growth through a range of market environments, recessions, inflationary periods, and wars. These are businesses which are already profitable today, our EBIT (earnings before interest and taxes) margin is more than 20%. The word growth is a broad term, and it is the addition of the word quality, which emphasises our investment styles.”

You can watch the interview here or read his views below

Quality growth companies like Hermes, Novo Nordisk, L'Oreal, and ASML have a demonstrated history of growth through a range of market environments, recessions, inflationary periods, and wars. They all share characteristics such as a strong reputation, and long-term and robust demand for their products even during tough market conditions. James Hanford, Analyst and Portfolio Manager at COMGEST shares insights on how the team at COMGEST identify quality growth, how they approach and understand risk in quality businesses, why they are sector agnostic and why quality growth investing is in the firm’s DNA.

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Three Minutes With

James Hanford explains how quality growth companies can offer investors double digit profit growth due to competitive advantage and thematic growth factors

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Three Minutes With

INTRODUCTION

Video interview

ESG considerations

Environmental impact

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How do you go about understanding risk in quality businesses?

James Hanford: “Assessing risk is one of the absolute central things which we do. If we overestimate the level of growth of these businesses, we will be disappointed, and we might get a lower investment return than we expected. If we overestimate the level of quality, that is a much more severe mistake. A lot of our work is on delving into those key sources of competitive advantage and quality and making sure that we have really pushed ourselves in assessing those factors. For example, one of our top holdings is ASML. It has a monopoly on the machines used to produce microchips and semiconductors. People understand that in the short to medium term, the position of that business is strong. However, most of our research has been around difficult questions like what ASML will be like in 10 or 15 years? Will we still be using silicon chips or the stock of equipment to print the designs on those chips, for example?”

Company Age

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Sectors

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Understanding risk

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Market backdrop

Three Minutes With

Michael Dicks on the key contributors that underpinned PGIM Wadhwani Keynes Systematic Absolute Return Fund’s double-digit return in 2022

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Bank retrenchment coupled with regional bank pressures has continued to result in opportunities

What are the sectors or areas you are finding opportunities in?

“We are sector agnostic investors, meaning that for us, we take a bottom-up company specific approach”

Explain why the average company age in your portfolio is well above index.

James Hanford: “The median age of the companies in our portfolio is 92 years old. Our biggest holding Novo Nordisk turned 100 last year. It was founded in 1923. The fact that these companies have existed for such a long time is something we really like because that shows that they have been able to grow and be successful through a range of economic conditions. That gives us more confidence in the visibility of that growth. In terms of why these companies are so much older than the average of the index, that is linked to our bias towards quality companies because the fact that this company has existed for a long time is a source of competitive advantage.”

“Since our inception in 1985, we have had one unique focus, which is on quality growth investing”

Tell us about how this comes together in the Europe ex UK Strategy.

James Hanford: “We have assembled a portfolio of around 35 companies and to assemble that list of companies, we have used the same team-based approach that we have used at COMGEST for more than 30 years. We believe that over the long term, the strategy's investment results will be driven by that double-digit growth in earnings.”

COMGEST is a broad-based partnership, how does that help?

James Hanford: “We have several key sources of competitive advantage. The first is the fact that since our inception in 1985, we have had one unique focus, which is on quality growth investing. That is the only thing we have done since we were founded almost 40 years ago, and we have truly built-up expertise in that area. It is in our DNA. The second key aspect is that COMGEST is a broad-based partnership, meaning that it is 100% founder and employee owned. As shareholders, we are incentivised to take a long-term approach to decision-making, to collaborate and make decisions that are in the long-term interests of our clients.”

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Strategy

On average, companies in our portfolio have existed for more than 90 years

Explain why the average company age in your portfolio is well above index.

We are sector agnostic investors, meaning that for us, we take a bottom-up company specific approach

Tell us about how this comes together in the Europe ex UK Strategy.

COMGEST is a broad-based partnership, how does that help?

Company Age

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