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M&G Global Basics has long been a well regarded Global Equity fund. We spent some time with fund manager, Graham French (pictured) and started by asking him about the past 10 years.
Q1. 2010 is the 10th anniversary of the launch of M&G Global Basics Fund, what do you think has been the fund’s biggest achievement during that time?
The biggest achievement for the M&G Global Basics Fund has been its exceptionally good long-term performance despite the most extreme economic conditions in recent times. It has also been the most consistent fund in the IMA Global Growth sector, having been among the top-10 performing funds in more calendar years (eight out of nine) than any other fund between 2001 and 2009. The fund was launched on 17 November 2000.
Single year performance (5 years ending October 2010)
| From | 30.10.09 | 31.10.08 | 31.10.07 | 31.10.06 | 31.10.05 |
| To | 29.10.10 | 20.10.09 | 31.10.08 | 31.10.08 | 31.10.06 |
| M&G Global Basics Fund | +23.7% | +36.5% | -32.3% | +23.7% | +23.4% |
| IMA Global Growth Sector | +14.9% | +25.7% | -31.5% | +14.6% | +16.2% |
Source of performance: M&G Statistics and Morningstar, Inc., as at 29.10.10, bid to bid, net income reinvested, Sterling Class A Shares. However, please note that past performance is not a guide to future performance. Prices may fluctuate and you may not get back your original investment.
The fund’s flexibility has allowed us to readily adapt to changing market conditions. We have been able to focus the fund wherever we believed the best investment opportunities were at the time, whatever the sector, region or company size. This approach, too, has provided valuable diversification benefits, which I believe has been a key factor in the consistency of the fund’s performance as market conditions have changed.
Q2. Which stocks would you see as your greatest success stories over the past 10 years?
Strong returns over the years have derived from a broad range of industries and regions. More recently, Singaporebased food, beverages and property conglomerate Fraser & Neave, zircon miner Iluka Resources and protective healthcare product manufacturer Ansell have made excellent contributions to performance. Over the years, holdings such as Tullow Oil, Colgate-Palmolive, BHP Billiton and K&S have also added substantial value. Key characteristics that these companies have in common include world-class assets (whether physical or intangible), supportive geographic positioning and, crucially, a shareholder-focused ‘equity culture’.
Q3. The fund has outperformed the IMA Global Growth sector average significantly (with the exception of the second half of 2008) over the past five years, what do you believe the reasons for this outperformance are?
The fund’s outperformance highlights the importance of sticking to a long-term investment strategy even during difficult market conditions, and being fully committed to your principles even if they are out of fashion, and not to be swayed by short-term swings in market sentiment.
Our investment strategy is simple: we look to invest in well-managed, financially sound companies with strategically valuable assets that are benefiting from long-term investment trends. These trends reflect the economic advances being made by developing economies as they invest in infrastructure and their populations become increasingly affluent.
While many single-theme or single-country funds are inherently restricted to a very limited investment universe, one of the greatest strengths of the M&G Global Basics Fund is precisely this lack of constraint. The value of having a well-diversified portfolio – with sources of outperformance from across different sectors and regions – means that we can usually perform well whatever the economic conditions. However, the value of overseas investments may
be affected by currency exchange rates. It must be remembered, too, that the past performance of a fund is not a guide to future performance.
Q4. The past three years have generally been challenging for investors and fund managers alike, although this year is looking much better. How has your fund held up during these times?
Apart from a short period of underperformance in 2008, the fund has performed extremely well. We experienced a period of underperformance in the second half of 2008 following the financial crisis and ensuing collapse in trade and economic activity. This was short-lived, however, and the fund soon regained momentum. We were able to take advantage of that period, however, to buy some grossly undervalued stocks as the market took fright, many of which, subsequently, have performed tremendously well. Please note that stockmarket prices may fluctuate and you may not get back your original investment.
Q5. Turning now to you, our clients are always interested in the manager behind a fund; can you tell us a little more about you and your background?
I have a degree in geography so have followed demographics and similar such issues for some time. I love to travel and will often go to the countries where the headquarters or key assets of our investments are based to get a true feel of how a business is run.
In my spare time, which is a luxury, I enjoy skiing, preferably in Switzerland. Also, a few years ago, I took up playing the piano.
Q6. What style do you adopt when running the fund, is it a team approach or very much you as an individual running it?
Mostly, I do my own research to generate investment ideas. I place particular weight on personal meetings with company management to hear how they see the prospects for their businesses and market environments. Also I draw on the research work of M&G’s other fund managers and analyst teams, who provide investment ideas that they believe may be appropriate for the fund. In particular, I work very closely with my colleagues in the M&G Global Equity team, and our open communication culture is especially helpful in ensuring that we share and debate fully our ideas.
Q7. Looking at your holdings in more detail nearly a third of the fund is currently invested in ‘basic materials’ can you explain a bit more about what these are and why you feel they represent a good investment in the current climate?
Recently, I have been building up the fund’s exposure to selected holdings within the mining sector, as I believe that rising demand for hard assets will remain a long-term phenomenon. These include Australian iron ore/coal miner Aquila Resources and Canadian nickel and coal producer Sherritt International. I have also been adding to selected holdings in the gold sector, reflecting both the strong long-term outlook for gold as a metal and, more importantly, the improvement in efficiency and focus on maximising profitability and shareholder returns that is increasingly evident (although not yet prevalent) within the gold industry.
Q8. Which other stock sectors do you favour at the current time?
As many developing economies get richer, the subsequent step-up in household income is producing an increasingly affluent middle class who are spending money to improve their quality of life. With this in mind, I have been gradually building up exposure to consumer-orientated stocks such as Starbucks, Colgate-Palmolive, Unilever and PZ Cussons. In my view, these are all world-class companies that are providing the goods and services that are in increasing demand in these markets. Another large holding, US fast-food giant Yum! Brands (owner of KFC and Pizza Hut), has an increasingly strong position in the vast Chinese market and is also benefiting from changing consumer tastes in other developing economies.
I have also been adding some luxury goods companies to the mix like Richemont, the Swiss maker of luxury brands such as Cartier watches, Van Cleef & Arpels jewellery, Montblanc pens and Jaeger couture, as I believe it will benefit from growing demand for prestigious goods as the spending power of the global middle class rapidly expands. Please remember that prices may fluctuate and you may not get back your original investment.
Q9. As we come to the end of the year, what are your feelings about both the UK and worldwide economy for 2011?
While the third quarter of 2010 experienced an improvement in investor sentiment, the outlook for the world’s developed economies, in particular, remains uncertain. However, I retain a positive view on the world’s developing economies, with many showing robust growth, as the shift of global economic power towards parts of Asia, Latin America and Africa transforms the outlook for consumer spending in these regions.
The views expressed in this document should not be taken as a recommendation, advice or forecast.
This Financial Promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The fund originally launched on 28 February 1973 (end of the initial offer period of the Fund in the UK). However, on 17 November 2000, the fund re-launched and we are choosing to use this date as the launch date for this fund. On that date the fund’s name, objective, benchmark and sector changed. Source of all stock positions: M&G as at 31 October 2010. The registered office is Laurence Pountney Hill, London, EC4R 0HH. Registered in England No. 90776 CC6862
