Navigating the global equities universe

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Intermede Investment Partners CEO and Portfolio Manager, Barry Dargan
Carolyn Herbert: Hello I’m Carolyn Herbert from the Finance News Network and joining me from UK based, Intermede Investment Partners is CEO and Portfolio Manager, Barry Dargan. Barry welcome to Australia.
Barry Dargan: Pleasure to be here.
Carolyn Herbert: Can you start by introducing Intermede Investment Partners?
Barry Dargan: Intermede is a global equities fund manager, set up by myself and some previous colleagues. We wanted to apply our process to global equity investing, as we had at previous places but in a more pure way, if you like, without having to get distracted by things that go on in larger companies.
We’re a small firm, but we’re very focused on what we do, which is looking for high quality growth and return businesses, which also meet our valuation criteria.We currently have around $1.5 billion in assets pledged from various clients. And the aim is to stay focused on delivering value for our clients, and to build it into a reasonably large asset manager over time.
Carolyn Herbert: So being a global best in class asset manager would mean you’d need to cover a lot of stocks. What does your investment process typically involve?
Barry Dargan: The global equity universe is a very substantial one. We don’t look at companies that are smaller than a billion dollars in market cap. But even then, there are about 8,000 of those on the Bloomberg universe, listed globally. So it’s huge. But what we do is we focus in, only on those companies that meet our growth and return metrics. So these are companies that typically grow faster than GDP (gross domestic product) and have much higher returns, and that we are confident of, will continue to compoundthat growth and return at high rates, going forward.
So we use a process of screening to find those companies, what’s delivered historically. And of course, we’re also more interested in what’s going to deliver going forward. So we also look at companies’ franchises, their management and their ability to deliver on the go forward. When we’ve selected those, we can get the portfolio down to only 40 to 50 names. And so with a team that we have, we can cover the global universe by focusing in on what really matters to us.
Carolyn Herbert: What are some of your larger holdings, and what would you say makes them so compelling?
Barry Dargan: At the moment some of our biggest holdings include companies like GoogleInc  (NASDAQ:GOOGL), Nestle SA (VTX:NESN), Mastercard Inc (NYSE:MA), Biogen Inc (NASDAQ:BIIB). These are all companies that are innovative, have higher rates of growth and return. And we feel offer extremely good value, in terms of where they’re placed relative to their history, in terms of valuation. They also have excellent managementand we’re very confident that they can deliver, going forward.
Carolyn Herbert: Can you give us an example of a stock that delivered for the Fund, when you first bought it and eventually sold it?
Barry Dargan: Yes, a good example would be a company like Calbee (TYO:2229), which is a Japanese consumer products company. They’re the leading snack food maker in Japan. That’s a company that we’ve owned for sometime and has rerated, as the market’s recognised the growth and return attributes of the company. It’s gone up from being a reasonably lowly valued company, to really quite an expensive company. And at that point it met our price target, we felt there was no further upside and the stock went up approximately fourfold, and we sold it.
Carolyn Herbert: What would you say the key drivers of performance have been?
Barry Dargan: It’s always stock picking for us; we just pick one stock at a time. We look for the excellent companies that deliver over the long term, in terms of their compounding growths and return. As that gets better recognised by the market, we look to see these companies get rerated, and that generally just drives the performance for us.
Carolyn Herbert: You’re in Australia this week, a country with the fourth largest private pension fund market in the world. What kind of interest have you been receiving from our superfunds?
Barry Dargan: I will be meeting a number of them over the course of the week. And I’ve been a regular visitor to Australia, over the course of my fund management career in previous fund managers. I’ve always had a good reception. As you mentioned the country has a superannuation policy. That means there’s a significant pool of savings that need to be invested and I think,global equities are an interesting space right now, given the weakness in the Australian dollar. So we expect to have some very good meetings over the course of the week.
Carolyn Herbert: What impact has the lower currency had on their intentions?
Barry Dargan: I think it brings to peoples’ mind, the fact that they do need to diversify their assets on a global basis. And that the Australian dollar may be the currency in which their liabilities are based, but they clearly can benefit from having international exposure.
Carolyn Herbert: Last question now Barry. Where do you see the best opportunities being over the next three to five years?
Barry Dargan: Well we manage 40 to 50 names in the portfolio. It’s globally diversified including in emerging markets, but principally we’re in the US, the OECD (Organisation for Economic Co-operation and Development) nations. We do it one stock at a time, and we’re particularly overweight in the consumer space, technology, capital goods and to an extent, healthcare.
We particularly like the confluence of consumer and technology. We think there are some very interesting innovative disruptive plays there. So companies like Rakuten Inc (TYO:4755) in Japan, Alibaba Group Holdings Limited (NYSE:BABA) in China, Google in the US are major holdings for us. And those companies we think are poised to benefit greatly from the growth in e-commerce, over the medium term.
Carolyn Herbert: Barry, thanks for talking to us about Intermede Investment Partners.
Barry Dargan: Pleasure, thank you.