28 January 2013
2012 was a good year for global shares, and the stocks in GMI’s portfolio enjoyed a particularly strong run, comfortably outstripping the global index. Looking back on the year, it’s difficult to identify an underlying theme, as the best performing stocks came from a wide range of regions and industries. However, despite their many differences, all of the winners share a number of qualities that are typical of a GMI stock.
Our best performing stock of the year was Aberdeen Asset Management, which rose 73% in 2012. The UK-based investment firm has been operating since 1983, a lifetime for a fund manager, and currently Aberdeen has almost GBP 200bn under management. The key strength of Aberdeen is its global product offering, and in particular its skew towards high margin equity funds in Asia and emerging markets. These equity fund inflows drove a steady increase in revenues and margins through 2012, and after enjoying another year of strong performance across most of its equity strategies, the wind is still firmly in Aberdeen’s sails as we move into 2013.
Another star performer in 2012 was Richemont (+50 %), the Swiss-based holding company that owns leading luxury brands like Cartier and Mont Blanc. While China’s love affair with luxury goods is well known, Richemont proved that it is more than a one market story in 2012, posting healthy sales growth across all of its key regions, even Europe (although this was largely due to wealthy tourists). With a strong management team holding the reins, we see Richemont’s foothold in prestigious, centuries-old brands as an investment story that will play out over many decades rather than a four-year economic cycle.
SAP was also on a tear last year, rising 52%. The German technology company has always been a market leader in enterprise software, and 2012 represented another year of double digit growth, despite a sizable exposure to the troubled European region. SAP isn’t resting on its laurels, and new products designed to help businesses migrate to the cloud means the company is in a great position to grow its share of business IT spending in coming years.
Rounding out our top five performers of 2012 were BMW and Visa, both of which rose over 40%. So in summary, the winners in our portfolio were a UK fund manager, a Swiss luxury goods company, a German software provider, a German automaker, and a US card payments network. While these companies couldn’t be more different in terms of products and services, they share a number of important qualities.
Firstly, they are market leaders, or own market leading brands, which gives them a competitive advantage in their respective industries. Secondly, they are global in scope, which opens up growth opportunities as well as reducing their dependence on a single region or market. And thirdly, they are well managed companies with sound corporate governance. Even the worst performer in our portfolio in 2012, McDonalds (-12%), embodies these characteristics, and that’s why we’re sticking with the name. Good companies have bad years, and we have every confidence that McDonalds will get its strategy back on track in 2013.
There are some exceptions to the global leader rule at GMI – supermarket operators Kroger (US) and Tesco (UK) are largely tied to their domestic markets, and we sometimes prefer the number two player in an industry over the number one (e.g. Republic Services in the US waste management industry). These are valuation calls, where we believe the opportunities are too good to pass up. However, the backbone of the stocks in the GMI portfolio is made up of quality multinationals with established business models. While we believe these companies are best positioned to capitalise on global growth opportunities as they arise, the comfort of knowing they’ll still be around in fifty years’ time should help everyone sleep well at night.
Any opinions expressed in this column are the author's own personal views. These opinions are general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial products. Readers should seek independent financial advice before making an investment decision.