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BMO Concentrated Global Equity F has served investors well.
Under the leadership of Michael Boyd and Giles Warren, who have been collaborating for about 25 years and since 2014 at GuardCap, BMO Concentrated Global Equity F has delivered. With positive stock-selection results in seven out of nine full calendar years since inception, the team has shown its talent for stock-picking. Particularly within the healthcare, financials, and communication services sectors, the team's approach has been fruitful.
The duo is supported by portfolio managers Orlaith O'Connor and Bojana Bidovec, who joined in 2015 and 2016, respectively. While there is no imminent retirement in sight for Boyd, the team’s most senior investment manager, it is reassuring that they are already planning for this long-term succession with the hiring of Satvik Subramaniam in January 2024 as a fifth team member. As an analyst, he will be patiently trained in the team’s investment philosophy. This group of investors is characterized by long industry experience, high stability, and their co-investments in the strategy, but it stands out for their intense collaboration, long-term investment horizon, and dedication to their research process. We think fund shareholders are in highly capable hands here.
Another strength of this fund is its well-structured, intensive, and thorough bottom-up research process. The philosophy adheres to strict quality and growth criteria but is also mindful of valuations. To help sweep through such a large investment universe, the team relies on a quantitative filter and long-term secular trend research. A small number of companies are meticulously and patiently analyzed. The intensity of research increases as a firm progresses through the stages of the process. The research is documented in detailed reports, which are heavily debated and challenged, even after a stock enters the portfolio. Throughout the process, all portfolio managers vote on whether a stock should progress to the next stage. The two lead managers finally select the stocks from a limited pool of companies that meet their stringent investment criteria.
The portfolio consists of 20-25 stocks, putting the managers' highest convictions on full display. It has clear tilts toward high-quality growth stocks but is also relatively diversified over sectors compared with peers that apply a similar quality-growth strategy. The managers have built an excellent long-term track record on the back of effective stock selection and outstanding downside resilience. However, it can see periods of underperformance given its concentrated nature and strong quality-growth tilt. Patience is required to fully benefit from the strengths of this unique approach.
While stock selection in the US has contributed positively since the strategy was launched, it has become an Achilles heel in recent years. The absence of some high-momentum stocks that led the market higher made it more difficult for the strategy to keep pace with its average Morningstar Category peer and the Morningstar Global Growth TME Index. Additionally, exposure to China and company-specific headwinds led to underwhelming performance over shorter time horizons. While Booking (BKNG), Novo Nordisk (NVO), and Alphabet (GOOGL) added to performance over 2023, the sluggish performance of Yum China (YUM), Illumina (ILMN), and Fanuc (6954) held the strategy back. Nonetheless, it has generated a positive alpha in most of the rolling three-year periods since inception, helped by its downside resilience of 74% versus the index since inception.