Sarasin is among the pioneers of global thematic investing, founded on the belief that globalisation has changed our way of life.
The group launched a UK vehicle in line with this approach last year – Equisar UK thematic opportunities – and manager Rohini Rathour feels this broader process is the key for success in local equities. She says: “UK equities have the highest exposure to international revenues among developed peers and the market is top heavy in terms of blue-chip companies.”
For Sarasin, a genuinely global outlook is vital to avoid missing key factors in many UK share price moves.
Rathour’s stockpicking begins with a big picture view to identify interesting areas, highlighting global trends that provide top-line growth for companies before filtering these using five core themes. These are effectively different corporate strategies through which companies either improve earnings or achieve a re-rating.
Sarasin portfolios are usually spread evenly across the five but the restructuring theme has been dominant coming out of the recession, as these stocks have enjoyed widespread re-ratings.
Rathour also highlights the intellectual property and excellence theme as key to returns in the fund’s debut year, with stocks such as ARM Holdings particularly strong.
She says: “We expect all holdings to be well managed but companies in this theme will have a particularly strong track record of operational excellence and commercial-ising their research and development.”
“We are seeking innovation in this area and a company such as ARM has benefited from smartphones becoming mass market, with its chips in the vast majority of handsets.”
ICAP, the interdealer money broker, is another top stock within this theme and Rathour feels this is a strong example of a company helping clients do their job more effectively.
She says: “Many might see this theme as defensive, filled with high-quality names that will not outperform in a bull market but we have balanced these with stocks capable of exceeding expectations.”
Corporate restructuring has proved a powerful story as the economy continues to move out of recession, with many companies looking to rejuvenate earnings.
“One way of reducing the cost base is companies selling parts of their business and improving conditions in 2010 – with M&A picking up on the back of healthy corporate cash balances – has proved a good backdrop for this,” she says.
Strong performers in this area have included Premier Oil, which the team bought when out of favour, and BP.
On the latter, Rathour did not hold the oil giant in the early stages of the Gulf of Mexico spill and benefited in relative terms as it fell. As the stock continued to drop, she felt it became too cheap and started buying in June.
Other positive themes over the year have been security of supply – via stocks such as Invensys and Agreco – and pricing power, where holdings have included BHP Billiton and Virgin Media.
Of Sarasin’s five themes, the only one not to add value in 2010 was the strong get stronger, which involves companies using balance sheet strength to build market share.
In the positive but volatile conditions of last year, Rathour says the more defensive, high-quality stocks in this theme lagged the market and she expecting to tweak this part of the fund in the coming months.
She says: “Strong get stronger has focused on companies with superior access to new capital but we may shift the emphasis to areas where it is still harder to find since the credit crunch.”
“The strong get stronger element of the portfolio shrunk last year as we took out several large-cap names unlikely to get re-rated and we expect more of a mid and small-cap focus in the coming months, finding companies using capital dynamically.”
Rathour expects a fairly volatile 2011 after two solid years, although she sees equities as still relatively cheap against a growing inflation threat in the background.
“Eurozone debt concerns have not gone away and we expect the odd bout of panic selling throughout the year,” she says.
“We will maintain our focus on long-term themes but also take advantage of shorter-term tactical opportunities to enter stocks at cheap levels where possible, as we did with BP.”