In our view, Martin Currie’s strength lies in its sound and consistent process. Stock ideas are generated from a variety of sources including a quant screening process (known as the Dynamic Stock Matrix) based on four factors; quality, value, growth and positive change. Quant screens have t
heir limitations in highly volatile markets so the value added by the sector analysts has even greater importance in the current market environment - their diligent process is exemplified by the managers’ prescient call on mining stock Teck Cominco. In-depth balance sheet work identified some debt repayment risks so the managers sold the stock in September; the company subsequently lost around two-thirds of its value in October.
Walker and Forsyth’s stock selection is also driven by the identification of catalysts that can boost a stock’s price. Proctor and Gamble, the diversified consumer products company, is exhibiting steady top-line growth despite an economic slowdown and the duo sees the fall in commodities prices as a catalyst for improving their profit margins. The team’s strategy usually leads to a growth tilt in the portfolio but they are willing to adapt the portfolio to varying market conditions. During mid-2008 the managers began setting up the fund to cope with a US recession, dipping into defensive stocks that have the potential to provide some buoyancy in choppy markets. The team believes the demand for resources will weaken in the short term, which justifies their underweight position, and they have been overweight in relatively defensive sectors such as utilities and consumer staples.
2008 was a good year for the fund until the second half when stock-specific issues caused significant damage. Blackstone Group lost two-thirds of its value since October and selected names such as Weatherford International and MEMC Electronic Materials also dented the fund, as did an underweight in healthcare. Even so, the fund's performance is sound for a growth-biased offering. In normal market conditions we would expect the managers’ skill and analyst support to help mitigate stock-specific risk although volatility should be expected with such a focused fund. Over the longer term, the fund has produced strong results and is top-quartile within its Morningstar US Large Cap Blend equity peer group for the three and five years to 31 October 2008, suggesting the strategy works well over time.
This fund has the necessary pre-requisites of a quality offering - an experienced management team, strong analytical resource, all working in a stable firm which gives us a high level of confidence. For investors who can handle the short-term blips that this fund will undoubtedly experience, we think Martin Currie North American is a fine choice for long-term US equity exposure.
