On the hunt for quality stocks in volatile markets with Intermede

Funds Management

by Carolyn Herbert

Transcription of Finance News Network Interview with Intermede Investment Partners CEO and Portfolio Manager, Barry Dargan and Investment Analyst, James Kim
David Chau: Hello I’m David Chau for the Finance News Network and joining me from Intermede Investment Partners is CEO and Portfolio Manager, Barry Dargan and Investment Analyst, James Kim.
Barry Dargan: Hello
James Kim: Hello
David Chau: First to you Barry, could you please give us an introduction to Intermede Investment Partners and its objectives?
Barry Dargan: Intermede Investment Partners was set up about two years ago. It’s an independent manager owned boutique that focuses on global equities. And we have a particular focus on higher quality growth and return names that we buy, at a discounted price.
David Chau: Can you tell us a bit more about your investment approach when it comes to global equities?
Barry Dargan: It’s a bottom-up one stock at a time process. We look into great depth of the companies that we’re going to own. We visit the managements and we form a case for whether or not, this is a company that we feel can reliably compound its earnings, growth and returns over the long haul. And then we model it out to make sure that we’re not paying too much for the business, and look into buying it at a discounted price.
David Chau: As a global equities manager based in London, what’s your view on Europe and the UK economy?
Barry Dargan: I think the European economy remains pretty subdued. It’s in a technical recession I think it’s fair to say, with very very low rates of growth. Within that, some economies are doing better than others. So the German economy is doing reasonably well, it has an export machine that’s focused on things like autos and engineering. But the periphery of Europe is doing much worse, but they all share the common currency of the Euro. And so that works well for the Germans, because it undervalues their growth potential, but it overvalues the weakness in the peripheral areas.
So it’s been a bit problematic for them and I think it’s fair to say, that we’ll have more issues with the Euro, as we go forward. When I look at the UK, of course it’s not in the Eurozone, it’s a very distinct economy. It’s actually benefitting from a weak pound at the moment, and also a strong service sector. And the UK economy is growing quite well, around about 2.5 per cent. So it’s quite detached from Europe, in terms of how it’s doing economically.
David Chau:Thanks Barry, now over to you James. You’re one of the investment professionals with the Intermede Global Equities Fund. What are some of your larger holdings?
James Kim: My responsibility at Intermede is to follow the technology sector for the funds. So for me, two things that I would highlight are Google Inc. (NASDAQ:GOOAV) and MasterCard Inc. (NYSE:MA). Both companies that I think really fit the profile of the types of investments that we are attracted to. If I could go into a little bit of detail there, number one Google.
Google is the dominant search platform in the world. It really has the leading market share in both desktop search and mobile search, which no other platform can provide. On top of that it’s making large strides in the mobile world. So now entering into the mobile device through social media and video, where it’s finding new opportunities to expand the reach of its platform, expand the reach of its value proposition. I think over time in the long run, we’ll see continued revenue growth, continued earnings growth and continued free cash flow growth, from that franchise.
Secondly, I can touch on MasterCard. MasterCard is another firm that really exemplifies the types of investment criteria that we focus on, when choosing investments. MasterCard is one of the two dominant payment platforms, around the world. So with MasterCard and Visa, leading the world there. MasterCard has a very powerful business in earning fees on all transactions that are made with credit cards, and debit cards globally.
As the world becomes more electronified in its payments, more and more people enter into the middle classes where they are able to use credit cards, as a form of payment - that only expands the power of the franchise for firms like MasterCard.
David Chau: How’s the Fund’s performance been?
James Kim: I’m happy to report that the Fund performance has been very strong. Since inception, as we’ve been actively managing money for the last 18 months, our Fund has outperformed our benchmark by more than 1,000 basis points. So about 10.7 per cent, which puts us firmly in the top decile of our peer group.
David Chau: Barry, you’re here this week in Australia to visit institutions and superannuation Funds. What are you telling them about the valuations and opportunities as you see them?
Barry Dargan: We’re still finding lots of opportunities in our set of stocks that we look at, so this higher quality growth and return group of companies. We’re still finding names that we’re looking to buy and we own between 40 and 50 names, at any point in time. We’re currently nearer the 50 mark, which tells us that we are finding opportunities. I would say that we’re probably more, less hopeful on the overall market for equities, for various reasons. But we’re very confident in the ones that we own.
David Chau: Last question, markets have recovered strongly since the dismal start to the year. What do you see as the most likely scenario for the next six months?
Barry Dargan: This kind of comes back to why we’re less positive on the outlook, for the overall market. And I think if you look at the profit share of GDP, that it’s at an all-time high, which means that you’re unlikely to see profits growing, as a per cent of GDP from here. So to get profit growth in aggregate, you’ve really got to see GDP growth and GDP growth is sluggish around the world. So we’re not going to see a huge amount of profit growth. In fact the next quarter or two, we think it’ll actually decline somewhat.
At the same time, we’ve also got valuations near an all-time high, which again means that we’re probably not so excited about the overall outlook for equities. But within that, we only need to own an elite group of the very best 40 to 50 names. And within that, we feel very confident with the companies that we own, that they are growing their profits and returns, and we own those at reasonable prices. So we’re very comfortable with what we own.
David Chau: Barry Dargan, James Kim, thanks for the update.


Carolyn Herbert

Finance News Network
Carolyn joined FNN in August 2015 as the Head of News and also presented the Market at Midday and the Market Wrap. With more than five years of broadcast journalism experience, Carolyn has worked as a finance anchor on the Sky News Business channel and as an anchor and reporter for ABC News. She is also a qualified corporate lawyer specialising in IPOs, takeovers and mergers and acquisitions.