In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewees are Greig Bryson and James Kinghorn, Nikko AM Global Equity Portfolio Managers. They run the Morningstar 5-star rated Nikko AM Global Equity Fund.
Which Sector Shows the Biggest Promise in 2022?
In our view 2022 is a year of regime change for market leadership: high growth stocks have been decimated by inflation and rising interest rates. We are focused on sectors like healthcare with sustainable pricing power and a proven track record for generating their own cash and not relying upon abundant liquidity in capital markets.
What's the Biggest Economic Risk Today?
The biggest risks are generally well known, and they're inflation and the ongoing war in Ukraine and its potential for escalation. The biggest risk to stock markets are central banks, their response to these factors, and the potential for policy mistakes.
Describe Your Investment Strategy
We look for companies that can sustain high return on invested capital or improve their return on invested capital over time. We call these "future quality" companies – and we want them to grow and reinvest cash into their business to generate high and sustainable returns.
Which Famous Investor Do You Admire?
Kinghorn: There are plenty of great investors out there. I suppose the person that sticks out in my mind is the one who got me interested in investing and valuation in the first place: Dr. Ben Nunnally. He taught me at university.
Bryson: Anyone who can retain their composure and keep looking for opportunities in an increasingly noisy world.
Name Your Favourite "Forever Stock"
There is no such thing as a forever stock. The last few months has shown how quickly stock market darlings can fall from favour. Competitive advantages just don’t last forever. Similarly, the evolving cost of capital can have a huge impact on a company’s ability to grow and its valuation.
What Would You Never Invest In?
Football clubs! They're the best way to turn a large fortune into a smaller one!
Growth or Value?
Our style of investing has a modest growth bias. We look for companies that can reinvest their cash back into the business so long as they can sustain or improve their return on invested capital. Growth and value are metrics based largely on historical data and we really are indifferent to a stock’s classification so long as it can achieve that improving return.
House or Pension?
Kinghorn: If I had to choose, I’d probably say pension as there is more flexibility, but both are great investments over the long term.
Bryson: A pension offers more diversification, but our house is more comfortable at the moment – despite the energy bills.
Crypto: Brilliant or Bad?
Kinghorn: As a currency I’d say it’s not fit for purpose. It’s way too volatile to be used as a stable currency. The technology has great potential though.
Bryson: Brilliant when there is excess global liquidity, probably bad when there’s not?
How Can We Increase Diversity in Fund Management?
Kinghorn: It’s all about the culture at asset management firms; the culture of a firm attracts a more diverse workforce. I think this has been changing but we still have a long way to go.
Bryson: Greater recognition of the value of non-financial or non-business qualifications. With the appropriate support, you can learn those on the job. Intellectual curiosity and the ability to build strong relationships aren’t dictated by anything you can find in Excel.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
Any engagement where the company genuinely wants to listen is worthwhile. Sometimes it can be just as informative when they don’t!
What's The Best Bit of Advice You’ve Ever Been Given?
Kinghorn: Don’t invest in something you don’t understand.
Bryson: From the CEO of one of the companies we invested in – never employ somebody you wouldn’t have a second coffee (or beer) with.
What Would You be if You Weren’t a Fund Manager?
Kinghorn: I’ve no idea. When I was young, I always wanted to be a chef but I certainly don’t have the talent.
Bryson: Something to do with sport, and preferably football. Based on ability these days, I’d probably have to be the person that sells the half-time pies.
