By Canada Life | Oct. 12, 2021
On the Canada Life™ Portfolio Manager Connect Series, we were joined by Peter O’Reilly, Portfolio Manager with C Worldwide Asset Management, to learn more about how they manage the Canada Life Pathways International Concentrated Equity fund.
A central part of their investment philosophy is their search for “compounders”, high-quality companies that can deliver sustainable growth over time. Rather than owning what’s popular in the moment, the team looks for companies with competitive advantages that can be maintained over time – for as long as a decade. As a result, they spend most of their time working out what companies to own for the long term, with less of a focus on what to pay for them.
How do they find these “compounders”? Since 1986, their investment philosophy has been grounded in trend-based stock picking; they identify long-term global trends that they believe are likely to have a significant impact on investments. Many themes coalesce around these trends, which are used as a top-down macro screening tool and investment framework. While these themes describe changes likely to occur over three to five years, they consider trends to be generational changes that will unfold over decades.
Five generational trends1
Why global trends?
C Worldwide believes that investments benefiting from thematic trends carry less downside risk than those based on traditional economic forecasts. These global trends are important drivers of cash flows, which C WorldWide looks to as the key driver of share prices over the long term.
Growth only has value if a company has a competitive advantage that enables it to generate excess returns on its incremental investments. The longer this period is sustainable, the better, which is why C WorldWide’s thematic focus is so important.
But what about the fundamentals?
To add value, the team takes a bottom-up approach to stock selection for those companies that tap into trends. They look for firms that have sustainable growth potential, instead of looking at the absolute magnitude of growth. In other words, the team believes that slow and steady growth that’s above market rates for a sustained period of time is more desirable than significant, but short-lived growth spikes.
The team also takes currency into consideration when selecting stocks, instead of taking a portfolio-level active currency approach. Recognizing the impacts currencies could have on business operations helps C WorldWide assess the projected current and future value of securities.
The Canada Life Pathways International Concentrated Equity fund
More than three decades of experience has taught the team that a concentrated portfolio of generally 25 to 30 stocks helps ensure strong diversification. To maintain a focused portfolio, the team follows a strict one-in, one-out buy/sell discipline where each investment must compete to stay within the portfolio. They’re also not constrained to a benchmark index, which means they can invest in their highest-conviction ideas. A concentrated portfolio that doesn’t follow the benchmark may offer diversification benefits for investors.
But, it’s not enough to find compounders and rest on your laurels. C Worldwide aims to do their part as active investors, steering development in a more sustainable direction through proactive engagement with the companies they invest in (read more about their commitment to sustainability).
The Canada Life Pathways International Concentrated Equity fund offers a compelling option for investors seeking to invest in global companies with a long-term focus.
The views expressed in this commentary are those of this fund manager as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Canada Life Pathways International Concentrated Equity fund is available as a mutual fund managed by Canada Life Investment Management Ltd. offered exclusively through Quadrus Investment Services Ltd., IPC Investment Corporation and IPC Securities Corporation. and as a segregated funds policy issued by Canada Life™. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. A description of the key features of the segregated fund policy is contained in the information folder.
Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.
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