Annual Report 2017

Investment Strategies

Global and International Equities

BTIM Global Equities

The team manages the BT Concentrated Global Share Fund, launched in August 2016. Our focus is on identifying industry leading companies that we believe are undervalued in the near term and offer long term capital growth.

Our active investment approach is founded upon fundamental bottom-up company research and analysis. We seek to invest in outstanding companies that we assess to be the global leaders in their industry. While we recognise that at any time a large majority of these companies will be fairly priced, we believe there are always opportunities to take advantage of pricing anomalies. We therefore focus our research effort on identifying those anomalies.

Our concentrated portfolio of 35 to 55 companies is constructed from our chosen investment universe, based on the principles of high conviction and diversification of economic risk. As such the make-up of the portfolio is likely to be markedly different from the benchmark.

During the 2017 Financial Year, the team has undertaken research into a diverse range of industries, including technology, healthcare, asset management, media, stock exchanges and aerospace. The research led us to identifying a number of strong investment opportunities for our clients.

Pleasingly, the first year’s track record has been strong, with our portfolio, outperforming its benchmark, the MSCI World ex Australian Total Return Index, by 3.5 percent (before fees).

Contributions to performance came from a diverse range of industry sectors, which in our view validates the importance of active stock selection. Our shareholdings in CSX Transportation, Boeing and Caixa Bank, are examples of companies that performed strongly during the year.

Over the past few years investors with broad stock market exposure have enjoyed strong investment performance. This performance has been sustained by persistently low interest rates and quantitative easing, resulting in broad market valuations that are above long term averages.

Going forward, we believe the tailwinds for equity markets of low interest rates and quantitative easing will be reversed. In such an environment, indiscriminate broad market exposure is unlikely to yield the same returns. Therefore, we believe this environment calls for an investment philosophy where stocks are carefully selected through intensive research and active assessment of a company’s long term strategy and management’s ability to implement it.

We see a normalisation of rates as inevitable, however we do not anticipate global interest rates increasing rapidly. This is likely to see swathes of the market unable to sustain their current lofty valuations.

Nonetheless, valuations in some parts of the market look attractive. The companies we hold in the portfolio are ones we consider to be industry leaders, have strong management teams, a sustainable, long term business strategy and whose shares were bought below what we calculate as their replacement value. Sometimes these businesses will take time to revert to their intrinsic value, however our view is that the industry leaders we are investing in are building sustainable businesses that will ultimately reward shareholders for their patience.

We particularly seek opportunities to invest when the tide of news flow and sentiment is unreasonably against a company, this requires us to be disciplined in selecting when to buy and sell.

The year ahead will see us building out our presence in the market, through progressively broadening our distribution.