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 interviewee is Christian Schneider, Lead Portfolio Manager for the Brunner Investment Trust (BUT).
Which Sector Shows the Biggest Promise in 2022?
We try not to make top-down calls on sectors. As fundamental stock-pickers, that’s not where our expertise lies and we prefer to look for companies with business models that can outperform regardless of economic cycles. In that sense, all sectors show some opportunity. However, this year we have certainly seen some sharp pullbacks in valuation across high growth technology and industrials names. Where earnings growth still looks robust, this is opening up opportunities.
What's the Biggest Economic Risk Today?
Stagflation; that is, persistently high inflation combined with high unemployment, such as that seen in the 1970s. Usually, when growth peters off it takes care of inflation. However, in the 70s we saw that didn’t work out because of successive policy mistakes from various angles. Something similar is happening today but with the addition of geopolitical risk playing out across markets. We’ve already witnessed earnings expectations being revised down and now expect further compression.
Describe Your Investment Strategy
We want to deliver capital growth and a growing dividend over time. We believe the best way of doing this is to look for companies with sustainable, compounding business models and strong cash flows. These companies can then either continue to grow or return the cash to shareholders in the form of dividends.
With this in mind, we look at all stocks in terms of our investment philosophy which prioritises quality, growth and valuation. In terms of quality, we look for companies with stable above-average returns (thanks to superior management), a competitive advantage and strong balance sheets, as well as other related factors. When it comes to growth, we seek companies with secular growth over the long-term, taking a through-cycle approach. Alongside this, we take a judicious view on valuations, using a reverse discounted cash-flow method to ensure today’s share price adequately reflects the business's expected returns.
Which Famous Investor Do You Admire?
It's probably boring and predictable but it would have to be Warren Buffett. Although everyone seems to admire him, barely anyone in practice follows his long-term approach – which is genuinely impressive. He is often mis-categorised as a deep value investor. It’s really about not overpaying for quality.
Name Your Favourite "Forever Stock"
Easy! Brunner! In all seriousness, I have conviction in Brunner’s strategy, philosophy and process. Even if the portfolio management team changed, ceteris paribus, it would be a personal top pick. I may be biased but the track record speaks for itself.
What Would You Never Invest In?
Personally, I stay away from non cash-flow producing assets such as gold. It’s not a reliable source of investment for my risk appetite.
Growth or Value?
At the end of the day, I believe in investing in good stocks! While I look for companies with sustainable growth, I also take a holistic view of a stock which means not overpaying for that. Not all stocks fall neatly into either category.
House or Pension?
Pension. It’s definitely more exciting in my view.
Crypto: Brilliant or Bad?
Both. Firstly, it's important to understand crypto is not just bitcoin, there are several aspects to it. For example, blockchain is a great technology that is increasingly being used for things like transactions. On the other hand, at the moment there’s not much clarity on the value of crypto as a currency and store of value. For that, we will have to wait and see.
What Can be Done to Improve Diversity in Finance?
It’s a good question. Diversity itself encompasses many forms, from gender to age, race, sexuality and disability. Across fund management we see a skew towards an older and male demographic.
To change this, we must become more attractive to underrepresented groups and individuals. This can be through more inclusive workplace policies, but also by going out to educate potential recruits. As a business, we recognise how their differences can be a strength and it’s important to communicate that.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We regularly engage with companies, and in doing so are supported by our excellent engagement team here at AllianzGI. In February, we engaged with IG Group, which is a leader in online financial trading. We advised the company it should pay a growing dividend to emphasise the board's confidence in its growth prospects.
At the same time, we discussed the need for IG Group to improve the market’s perception of its business quality. Shortly after in its July results, IG Group announced a new capital allocation strategy that was very similar to our proposals. We were very pleased with that.
What’s the Best Advice You’ve Ever Been given?
Know your areas of competence (and try not to go too far into the ones you don’t have).
What Would You be if You Weren’t a Fund Manager?
I'd love to have been an Olympic 400m gold medalist!
