Companies that are operating in growing markets, which have low levels of debt, pricing power and generate significant amounts of free cash and give most of that back to shareholders, are likely to be winners in the current environment, according to Insync Funds Management’s Monik Kotecha.
Insync: Formed in July 2009, with the global equity fund launched in October 2009.
Experience: 20 years in the industry, including three years in London for the Abu Dhabi Investment Authority, six years with BT as a senior portfolio manager in international equities and seven years at Investors Mutual Limited as senior portfolio manager.
Investment philosophy: Our core philosophy is that a concentrated portfolio of exceptionally high quality companies that deliver strong consistent dividend growth, especially when selected with an absolute value bias, will generate attractive long-term returns with lower levels of volatility.
One of your best calls: MasterCard is a good example of the sort of business we aim to hold. It has pricing power and competitive advantage resulting in high operating margins, an asset-light business model that results in a high cash conversion and returns on invested capital. It also has good long-term secular growth prospects with a business model that is durable, scalable and global in nature.
The share has historically traded at between 20-30 times earnings, but the current uncertainty created a compelling buying opportunity and we were able to begin acquiring shares at around 13 times earnings, exceptional value for a business of its quality.
Outlook for the year ahead: We continue to operate in a very volatile economic and business environment, with excessive debt in developed markets, rising inflationary trends and the risk of lower global growth in the years ahead compared to the past. We are in a structurally challenging environment, which may remain in place for an extended period of time.
Fund positioning: We believe that stock picking is going to be critical, and index funds may well disappoint as it is no longer a case of a rising tide lifting all boats. Companies that are operating in growing markets, which have low levels of debt, pricing power, and which generate significant amounts of free cash and give most of that back to shareholders, are likely to be winners in this environment.
