For growth investors, global stocks may offer better opportunities than the UK. According to Pieter Fourie, manager of the Sanlam Global High Quality fund, this is because there are less attractive companies available to investors in the UK.
“The sad thing for us as fund managers is we see fewer and fewer good businesses in the UK – even Unilever is not immune from a takeover bid, which was quite scary for us,” Fourie told Morningstar this week.
“That’s why you see investors like Neil Woodford launching a fund with global focus. It is a realisation that global is a much better place to invest than UK itself.”
Fourie says that over the past 10 years, in dollar terms, there has been no growth in the UK stock market. In fact, in capital terms UK stock market has lost around 20% over the past decade.
Because of this, Fourie only holds four UK stocks, out of 31 holdings in his fund. They are Unilever (ULVR), Diageo (DGE), Imperial Brands (IMB) and British American Tobacco (BATS).
“If you are looking for value in the UK stock market today, you have to take on more risk,” Fourie added.
Best of Both Worlds
Instead, Fourie looked at stocks listed in developed markets whose revenues come from emerging markets. Pernod Ricard (RI), for example, is a French listed wines and spirits company with major businesses in emerging markets, China and India.
“India is a very important market for Pernod Ricard. We believe there is room for operating margin improvement as the portfolio in China and India are being rebalanced towards higher margin international brands,” said Fourie.
Philip Gorham, senior equity analyst with Morningstar agrees, saying despite recent headwinds in China, Pernod's cognac business in China and whisky in India positions the firm well for superior long-term volume growth in some key emerging markets.
“The long-term growth trajectory for the distillers is attractive, as trading up to premium spirits has barely begun in several key emerging markets,” said Gorham.
Fourie expects top line growth of the company to recover as organic sales growth starts to stabilise in China and returns to positive growth over the next two years.
Fourie also likes Medtronic (MDT), a medical equipment company with 14% exposure in emerging markets. “Emerging market is a great growth area for them,” he said.
Debbie Wang, senior equity analyst with Morningstar feels positive about the company’s refocus on emerging market business as well.
“Considering Medtronic has been making a number of investments in China and India, and has identified emerging markets as a strategic source of growth, we think the company’s chief executive Omar Ishrak has pushed Medtronic away from its U.S.-centric past and focused the organization more closely on the potential in emerging markets,” said Wang.
