What is the value of the CM-AM Global Leaders theme and DNA?
The interest of the theme is pricing power. With inflation persisting, only firms with strong franchises have the ability to raise prices without being disavowed by their customers. The investment team returns from the US where it has met a wide range of firms like Procter & Gamble, Walmart or Tapestry... As is clear, consumers are seeing a dramatic erosion of purchasing power which is dramatically altering their buying behaviour . In this context, management favours brands that are aimed at an easy consumer or who are leaders in their category. PepsiCo which has the ability to increase Frito lays package prices by 15% without seeing a drop in volumes is a good example: Americans stay true to their chip brand...
How do you ensure these companies remain leaders?
The focus of the fund management is to ensure that each company held in the fund strengthens its leadership. The ability of the brand to engage with the consumer as well as the generation and use of cash flow are carefully considered criteria. While financing conditions are toughening around the world, I am favouring companies with strong balance sheets that are offensive. See Microsoft investing $ 10 bn in generative artificial intelligence or L'Oréal seizing Aesop for $ 2.5 bn is a very good signal. The original Australian brand Aesop perfectly complements the premium cosmetics of L'Oréal. With natural ingredients, a bespoke service, this epite meets new consumer expectations (durability, natural) and is a great success in China. By investing in times of crisis, these leaders are widening the gap with their peers.
How do you integrate a SRI approach into your investment process?
The investment process incorporates criteria that allow to analyse the strength of the brand as well as the operational, financial and extra financial excellence of the company. By adopting a SRI approach in 2021, management has strengthened the fund's investment process. Environmental and socialchallenges are becoming more prominent in consumer concerns. They expect brands to inform and commit to. Ultimately, only the brands whose companies engage on the ground in a responsible manner will stand out from the public. These companies are building a foundation for sustainable value creation for their shareholders. Apple 's corporate governance is certainly one of the strongest performers in US tech. Its compliance with the regulations around the private data of the customers or its efforts to the recyclability of the Iphones.
How do you position yourself after the market downturn seen in 2022?
2022 was complicated because the rise in interest rates was violent and affected the valuation premium of the leaders held in the portfolio. For example, a holding such as Visa, which last September traded 30% below its highs without any change in its growth profile, is one example. After years of strong performance in 2020 and 2022, there are opportunities to see these high quality stocks take a breather. The fund manager was able to increase its positions in the luxury houses like LVMH and Hermès. We also invested in ASML, whose advanced semiconductor equipment continues to show unprecedented growth.
And what do you think of the rapid pace of stock markets in 2023?
2023 kicked off with good news like reopening in China, energy recovery plans and a mild temperature in Europe that shunned consumers' spending power. However, valuations have soared and bank defaults in the US and Europe will weigh on the wealth multiplier effect from abundant credit. Pilot management between risk of downward revisions of company growth estimates and sustainably higher rates. The quality of the fundamentals of the companies chosen is an important reminder. At this point, I prefer exposure to stocks with visible growth levers (Eli Lilly, TSMC) or profiting from the reopening of China (Budweiser Apac, BYD). I remain positive on US healthcare: A stock like UnitedHealth has once again become attractive. The trade side remains strong as outside the technology sector, the US economy continues to create jobs. In addition, Unitedhealth is well positioned in the offering of public and private insurance policies for the elderly, benefiting from US demographics.
Text completed on 5/04/2023