13 Questions for Newton IM’s Louise Kernohan and Georgina Cooper

Which Sector Shows the Biggest Promise in 2022?

We think the FTSE 250 offers a good opportunity for investors to tap into the mid-cap area of the market and find companies that show long-term growth potential and resilience during periods of uncertainty. We think this area of the market has been oversold as investors view the FTSE 250 as a domestic proxy. However, for long-term investors willing to do their own in-depth research, the mid-cap area is an interesting hunting ground for stock ideas, namely in the consumer discretionary sector where we’re seeing pockets of opportunity, such as Pets at Home.

What's the Biggest Economic Risk Today?

There’s an incredible amount of uncertainty at the moment, a lot of which is being driven by the decisions made by central banks, and by ongoing changes in the UK government and its policy. We have been in a low inflationary, low interest rate environment for a very long time, but this has changed very dramatically and rapidly in the last year, and we’re now in a situation where the range of potential outcomes and policy decisions is extremely wide-varying, exacerbating the feeling of uncertainty in the markets. As investors, it’s important now to keep a cool head, focus on what can be controlled, and look at a longer-term perspective to portfolio construction.

Describe Your Investment Strategy

We take a long-term, bottom-up approach to investing. In both the BNY Mellon UK Equity and BNY Mellon Sustainable UK Opportunities portfolios, we aim to buy and hold high-quality companies with strong fundamentals, sustainable business practices, that have the ability to grow over and above GDP, and that we think are being mispriced by the market. We also seek out longer-term trends that will last for many years rather than just a few months, such as digitalisation and health care innovation. We therefore prefer to identify those companies that not only showcase attractive business models, high barriers to entry and good earnings visibility, but that also provide technology-led solutions that improve accessibility and efficiency for their customers.

Which Famous Investor Do You Admire?

Louise Kernohan: We both look up to Terry Smith, founder, and CEO of Fundsmith. As another quality-focused equity fund manager, Smith runs his strategy in a similar style to us, taking a fundamentally bottom-up approach to investing in stocks, and has retained an incredible track record in his investing career, even during periods of volatility such as the environment we’re experiencing today.

Georgina Cooper: In his AGM presentations, Smith often relates back to his experiences as a fund manager through previous cycles, how he navigated and survived them, and how he foresees these cycles repeating again. His presentations offer us an interesting insight into his views and experiences as a career investor.

Name Your Favourite "Forever Stock"

We don’t believe there are many companies that can truly be dubbed “forever stocks”, but we feel RELX is currently showcasing strong fundamentals and structural growth that is aligned to very long-term drivers, and will continue to do so for the foreseeable future. RELX is a UK-based multinational company which provides information-based analytics and decision tools for professional and business customers. As a business, RELX holds a strong track record of being resilient through economic cycles and has a notably wide economic moat which should allow it to continue generating high returns in the long-term.

What Would You Never Invest In? 

We view ESG and sustainability as integral to determining the quality of a business and so would never invest in a company which fails to consider these factors. In order to be high-quality, we believe a company has to think about the sustainability of their overall business practices, not only in their impacts on the environment, but also in the treatment and remuneration of their staff, the composition of their board and their general governance and management structures.

Growth or Value?

We think growth and value go hand-in-hand, and it’s important to consider both before investing in a business. As such, we specifically look for high-quality companies with both good growth prospects and that we think are undervalued with a long-term horizon.

House or Pension?

Pension, because your home plays an important part of your retirement plan.

Crypto: Brilliant or Bad?

There is potential in blockchain technology, but as professional investors, we currently feel the sector is too risky due to lack of regulation, and is extremely volatile, offering no way of determining value based on any fundamentals.

What Can be Done to Improve Diversity in Finance?

We feel it will take a combination of both time and education. Historically, the fund management industry has not been very diverse particularly at a senior level, and it has taken time for role models from diverse backgrounds to develop a wealth of experience and reach the portfolio management, executive or board levels. We think more can be done to introduce investing to women at a younger age both in the educational sphere as well as via mentoring and networking. We are one of the few all-female fund management teams in the industry, we are excited by the opportunity to be role models for the next generation of aspiring investors and for young people from different backgrounds – we hope to continue seeing greater diversity at a fund management level in the future.

Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?

Marshalls is a leading manufacturer of hard landscaping products in the UK, with a best-in-class offering and exposure to higher-growth areas such as new builds, water management and pedestrianisation. From an outside perspective, this sector is often perceived as quite ‘dirty’, contributing high carbon emissions, and so we requested a meeting with the company’s chief sustainability officer to address their longer-term sustainability goals. At this meeting, we were able to discuss Marshalls’ initiatives to reduce the carbon emissions created in the manufacturing of concrete bricks, and we also learned about the company’s aim to develop carbon negative bricks.

What’s the Best Advice You’ve Ever Been given?

Georgina Cooper: Be ambitious about your long-term goals but remember to break these up into achievable bite-sized pieces. Keep a level head and don’t second guess yourself.

Louise Kernohan: As a keen runner, I find the best marathon advice is often directly applicable to long-term investing – “trust in the process and the outcome will take care of itself”.

What Would You be if You Weren’t a Fund Manager?

Georgina Cooper: Event planning would be a totally different avenue to pursue, and would combine my creative flair with skills like organisation, research, and patience.

Louise Kernohan: I would pursue a healthcare-related profession – covering pharmaceutical stocks over the years as an investor has made me realise how interested I am in this sector and I also like to help people and make a positive impact in their lives.