When investing in global equities the options are vast. With a hunting ground spanning almost every country and sector, it is often assumed a manager requires a huge team of analysts behind them to run an international fund. Yet James Thomson of Rathbone Global Opportunities has thrived as part of a relatively small team.
His internal analysts cover around 20 per cent of his investments and he makes use of external analysts for the remaining 80 per cent. Both highlight new opportunities but he finds “speed dating” – meeting a number of external analysts in quick succession to hear their best ideas – particularly useful.
Despite the bull market of the past few years, Thomson is currently in an enviable position of having more opportunities than he has space for. He keeps the fund between 40 and 60 investments to ensure each can have a meaningful impact on performance, so for a new one to join, one needs to be sold.
The fund has historically had significant investments in small and medium-sized companies. However, it has grown to £750m in size and has daily inflows of around £500,000, which makes investing in companies smaller than $1bn untenable. That said, the manager still finds the most exciting opportunities among medium-sized companies with a market cap between $1bn and $5bn, so the fund remains invested in smaller stocks than many of its peers.
Thomson has changed very little about his approach since he began managing the fund in November 2003. However, following heavy losses through the 2008 financial crisis, he now has a greater focus on risk management and invests around 25 per cent in less economically-sensitive businesses, such as healthcare and food and beverages, to help shelter from any future stock market falls.
As a stock-picking investor, Thomson pays little attention to the constitution of the benchmark. He does not invest in emerging markets or Japan, as he does not feel he has the required expertise, and has no exposure to banking, utilities, telecoms or oil and gas. This can lead to erratic performance relative to the benchmark but his conviction has added value over the long term. For example, this positioning, along with good stock selection, resulted in exceptional performance through 2015 but held back relative returns early this year as trends reversed.
And while Thomson is principally a bottom-up investor, there are a number of themes running through the portfolio, including health and wellness, escapism and “masters of the web”. The former includes investments in invisible brace producer Align, which is particularly popular with adults unwilling to sport conventional braces, and food technologist Kerry, which works on removing sugar and salt content from food without affecting taste.
Under the umbrella of escapism, Thomson invests in two of the biggest gaming companies in the world: Activision and EA Games. Gaming companies used to be highly cyclical but since the introduction of in-game purchasing, and with games now primarily sold online, margins have improved dramatically and earnings are more stable.
Meanwhile, Amazon is an example of an investment made under the “masters of the web” theme. Despite the quantity of analytical research on the company, Thomson feels many investors have underestimated its potential. Amazon has been criticised in the past for over-investing in customer experience; however, the manager views this positively and expects it to cement its dominance and result in high levels of customer loyalty, which will benefit shareholders in the future.
Thomson is more bullish than most fund managers I have met recently. Investors are confused by the plethora of events over the past few years and he has identified many opportunities among the volatility. The fund is a great option for long-term investors and would sit well alongside a more general vehicle covering emerging markets and Asia.
Mark Dampier is head of research at Hargreaves Lansdown