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Investment Uncovered: ‘Why I am not afraid of missing out on start-ups’

Aviva Investors’s Giles Parkinson talks achieving diversification through mega-caps and why equity managers should lengthen their time horizons as the global sector booms

With UK equity funds losing money over Brexit fears, investors continue to pour their money into global funds.

According to the Investment Association, global equity funds proved the most popular among equity funds in July, recording £737m in new investments and marking the best-selling funds by region for nearly 12 consecutive months.

This week, we look at a recently launched global equity fund by Aviva Investors, the £700m Global Equity Endurance fund, managed by Giles Parkinson.

Parkinson, who joined Aviva in 2015, helped launch the fund last November.

He is the lead manager but works alongside Richard Saldanha, who also runs the £30.8m Aviva Investors Global Equity Income fund, and Helen Driver, manager of the £1.3bn Aviva Investors Multi Strategy Global Equity Income strategies.

What’s the fund’s objective?

The fund objective is long-term total return and long-term capital growth.

How do you define long-term?

The best way to judge a fund is over four market cycles, so peak to peak. There is not a fixed time as to when that happens. In fact, it has been nine years since the market has bottomed, for example, so this cycle has been longer than others. Typically they are around five to seven years.

Who should buy the fund?

The fund addresses those who are seeking defensive returns over the long term.

How do you select companies?

The first thing we look at is: is this a good business? If a company had high returns in the past is usually a sign that it has got a competitive advantage, and something that protects those returns and stops outsiders coming in and taking those high returns away for themselves.

Then we ask ourselves if it is a business we understand, and then in the future if the returns are going to be sustainable.

After the firm is in our focus list, we look at valuations and whether these are reasonable.

We look at mature companies in their stable growth phase so we are not finding the next Facebook or Google and we are going to miss start-up companies. We will also struggle to hold the very rapid growers, those that are on their way to becoming mature. This is because the history of the company is not there. Facebook has only been around for 10 years.

In the portfolio, we hold companies that are over 100 years old, which means they went through World War II, the global depression and the financial crisis. Those companies have really been tested through the darkest times.

The other reason why we do not hold rapidly growing companies is because the market knows they are and puts them in at a very high multiple of sales and profits, which does not fit with our valuation framework.

Mark Barnett: UK equity markets are on shaky ground

How’s your fund different from other global funds?

There are three key ways. The first is that it is an unconstrained fund, so it is not benchmarked against the MSCI or the FTSE indices.

This enables us to select the best investments from around the world regardless of the sectors they have been classified under or country they have  been listed in.

Secondly, it is more concentrated than most other global equity funds so we have soft timelines of typically 20 to 40 holdings and we have currently around 30 names in the funds. Typically, 90 per cent of the fund assets are in just 20 holdings so that makes it much more concentrated versus most others that are usually around 60 to 80.

The other difference of the fund is the time horizon. We make an investment in the business because we want to own it. So as long as the company grows in value and does not became overvalued we are happy to hold it. We anticipate usually a five- to  10-year holding period. Since it started the fund’s turnover has been around seven years. For most other equity funds, the investment horizon is about one to three years.

Why are you more concentrated than others?

Some people might view having a concentrated portfolio as high-risk. We actually see it as low-risk. For example, we achieve diversification in the funds through the nature of the businesses that we select for it. Unilever, the top holding of the fund, is a mega-cap company operating in 200 countries around the world, has thousands of product lines competing in different industries. So although it’ is a single investment, and we do not allow any investment to make more than 10 per cent of the fund, if you invest in Unilever you achieve a lot of diversification.

Other top holdings include Church & Dwight, Heineken, L’Oreal, and British American Tobacco.

Do you invest your own money in the fund?

I am unfortunately not able to because of the current legal structure of the fund as it is a Sicav, but I am pleased to say there is an Oeic which has been planned to launch later in 2017 and when that happens then I will be delighted to transfer mine and my family’s pension into the fund and have 100 per cent of our savings in it.

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