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Manager focus: Laurence Taylor

The day the Global Large Cap Equity fund was launched, the Vix volatility index hit an all-time high of 80, Laurence Taylor, a portfolio specialist at T Rowe Price, recalls.

“The markets were in phenomenal distress in October and November last year. It was a difficult time for a fund launch,” Taylor says.

Last week, on the day that the G20 agreed on a $1 trillion (£675 billion) package to tackle the global recession, the VIX fell by 0.6% to 42.04, according to Bloomberg.

“The time when people were selling good stocks as well as bad stocks is over. At the end of 2008, investors were forced to sell equities,” he says. “The market experienced a great weight of money withdrawn, but it created opportunities.”

He says that a lot of stocks, including those of Apple, sold down. “It was a bargain time, a once in a lifetime opportunity to buy.” He bought Apple and Amazon. Apple was an attractive investment as it had 25% of its market capitalisation in cash, while Amazon is taking up market share from its competitors. With 2.5%, it was the fund’s largest position by the end of December.

“Our whole portfolio is growth-oriented [but] not every company is held just for growth [prospects],” he says.

He says the fund aims to have between 80 and 100 positions. With 109 positions currently in the portfolio, he has almost reached the maximum number of holdings. “With so much volatility, we have to be careful of position sizing,” he notes.

“We are price-oriented and are trimming back positions as we see a [stocks] rally. At the moment, we are more careful about price than ever before.”

When selecting holdings, he looks at the overall fundamentals of a company, such as whether it is taking market share from competitors or are becoming more efficient.

“The ideal company would be very efficient and have top-line growth,” he says, adding he would want to buy it “at the best value possible.”

Taylor says that despite the turmoil of financial markets last year, there are opportunities to profit. “There are now investment opportunities in new industries, new companies and in more different countries than ever before.

“The world is so much more complex now. It is a period of great change and we will benefit from that change if we understand [the global economy],” says Taylor.

A team of 110 analysts scans the market for “best ideas”, because the company believes that fundamental research is critical in order to assess long-term investment opportunities successfully.

Taylor says that Scott Berg, the fund manager, determines the structure of the portfolio. With a global strategy in mind, Berg looks at the highest conviction ideas within the global fund.

Industry and company structure are “paramount in the security selection process”. However, T Rowe Price recognises that sector and regional factors also influence stock prices.

“We are currently underweight in Japan because we expect earnings growth of Japanese companies to be challenging.” In contrast, the portfolio is overweight emerging markets. “China, for example, has high savings rates and large foreign currency reserves. It can finance its own capital expenditure by savings and create its own demand.” Taylor says that after China’s export success, its domestic sector could become a second success.

The Global Large Cap Equity fund is therefore overweight in companies that are likely to benefit from infrastructure projects.

“It is also overweight in Brazil, but not necessarily because of commodities. The Petrobras holding is one of the strong contributors to the fund’s performance.”

He says that Brazil has the largest oil reserves in the world. In October and November last year, Petrobras holdings were “phenomenally cheap” because the stock was oversold. “Now it is up nearly 95% from its low in November,” Taylor adds.

“But it is not just commodities. I expect similar impacts [on other stocks] because of the emergence of a middle class, and new credit and consumption trends.”

He says the fund’s portfolio is overweight in information technology because companies’ strong balance sheets and their pricing power can drive earnings. For volatility reasons, other asset allocations within the portfolio are relatively neutral.

“At this point in time, Scott Berg believes he can generate alpha at the stock level rather than a sector level.”

The Global Large Cap Equity fund is available to investors via a segregated account and its Luxembourg-domiciled Sicav range.


Related Articles:
T Rowe Price launches large cap fund


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