Management Global High Conviction Fund Aitken Investment Management - - PowerPoint PPT Presentation

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Management Global High Conviction Fund Aitken Investment Management - - PowerPoint PPT Presentation

Jul 03, 2023 210 likes •480 views

Aitken Investment Management Global High Conviction Fund Aitken Investment Management Who Are We? A portfolio built to capture long-term secular trends by investing in high quality businesses that can compound in value Bottom-up,

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Aitken Investment Management

Aitken Investment Management

Global High Conviction Fund

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Aitken Investment Management

Who Are We?

  • A portfolio built to capture long-term secular trends by investing

in high quality businesses that can compound in value

  • Bottom-up, fundamental-driven, concentrated, long only,

unhedged

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Aitken Investment Management

Why global?

United States, 63.7% Japan, 8.2% United Kingdom, 5.5% France, 3.8% Canada, 3.4% Switzerland, 3.1% Germany, 2.9%

Australia, 2.3%

Netherlands, 1.2% Hong Kong, 1.1%

Developed Markets: Countries by Market Cap

0% 5% 10% 15% 20% 25% 30% 35% 40%

Developed Markets vs. Australia : Sectors

Developed Markets Australia

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Aitken Investment Management

What Do We Believe?

Over the long term, value is created and captured by businesses that:

Grow revenues at a rate exceeding nominal GDP

Invest in businesses experiencing structural tailwinds

Generate excess returns on capital sustainably

Excess returns on capital underpinned by a moat or competitive advantage: a high-quality business

Reinvest excess returns at rates of return that beat inflation

Growing the business or widening the moat to grow value over the long term

We call these businesses compounders

We seek to identify and invest for the long term

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Aitken Investment Management

It Pays to Own Compounders

Value creation is a function of interest rate expectations Value creation needs a timely catalyst Value creation is a function of sustainably timing the cycle Value creation is a function of a business generating & reinvesting excess returns

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Aitken Investment Management

It Pays to Own High-Quality Businesses

Source: Bloomberg EQS. All series based to 100 on 30 September 1994. All returns gross of fees.

Parameters – High ROIC: Only DM businesses with a market cap in excess of USD10bn, top 20% by ROIC. Rebalanced monthly. Parameters – High ROIC+ (1m): Only DM businesses with a market cap in excess of USD10bn. Top 10% by ROIC, LT Debt/Total Assets < 50%,4% or higher YoY revenue growth. Rebalanced monthly. Parameters – High ROIC+ - (6m): Only DM businesses with a market cap in excess of USD10bn. Top 10% by ROIC, LT Debt/Total Assets < 50%,4% or higher YoY revenue growth. Rebalanced every 6 months.

500 1000 1500 2000 2500 3000 500 1,000 1,500 2,000 2,500 3,000 09/1994 09/1995 09/1996 09/1997 09/1998 09/1999 09/2000 09/2001 09/2002 09/2003 09/2004 09/2005 09/2006 09/2007 09/2008 09/2009 09/2010 09/2011 09/2012 09/2013 09/2014 09/2015 09/2016 09/2017 09/2018 09/2019 High ROIC (top quintile) MSCI World (USD) High ROIC+ (1m) High ROIC+ (6m) 11.2% 7.6% 13.0% 14.1% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

High ROIC (top quintile) MSCI World (USD) High ROIC+ (1m) High ROIC+ (6m)

Compound Annual Growth Rate

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Aitken Investment Management

It Pays To Focus On The Long Term

50 100 150 200 250 300 350

MSCI World Net Total Return (USD)

MSCI World

  • Excl. 5 best days
  • Excl. 10 best days
  • Excl. 20 best days
  • Excl. 30 best days

OECD G7 Inflation 7.1% 4.8% 3.1% 0.8%

  • 1.1%

1.7%

  • 2.0%
  • 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

MSCI World

  • Excl. 5

best days

  • Excl. 10

best days

  • Excl. 20

best days

  • Excl. 30

best days OECD G7 Inflation

Compound Annual Growth Rate

Source: AIM, MSCI

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Aitken Investment Management

Profits and the Capital Required To Generate Them

Source: AIM, MSCI

0% 5% 10% 15% 20% 10 20 30 40 50 60 70 80 90 100

ROIC - % Share of Invested Capital - %

MSCI World – Pools of Profit (Trailing 12 months – Sept. 2019)

Utilities Real Estate Materials Information Technology Industrials Health Care Financials Energy Consumer Staples Consumer Discretionary Communication Services

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Aitken Investment Management

Idea Generation

  • Top-down
  • Initial Screening
  • Find Attractive

Global Profit Pools

  • Bottom-up
  • Secular Growth

Trends

Fundamental Analysis

  • Quantitative Review
  • Qualitative Analysis
  • Forecast & Valuation
  • Ongoing Monitoring
  • Travel
  • Conferences

Portfolio Construction

  • 15 – 25 stocks
  • Sensible stock,

sector and regional limits

  • FX unhedged

Our Investment Process

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Aitken Investment Management

Portfolio Construction Framework

  • Concentrated: 15 – 25 stocks
  • Maximum single stock position: 7.5%
  • Minimum single stock position: 2.5%
  • Cash: 0% - 10%
  • Currency: unhedged
  • Sector limits
  • 25% maximum per GICS sector

classification

  • Regional limits
  • 15% maximum, excluding the USA
  • USA: often the listing venue, not the

source of economic risk

  • Off-benchmark regions capped at

10%

  • Minimum market cap
  • USD10bn or equivalent
  • Liquidity
  • Minimum USD50mn or equivalent

average daily value over 30 days

Cyclical Growth

  • 0% - 30%
  • Example:
  • LVMH

Secular Growth

  • 50% - 70%
  • Example:
  • MasterCard

Defensive Growth

  • 20% - 40%
  • Example:
  • Estee Lauder

Future Compounder

  • 0% - 10%
  • Example:
  • Netflix
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Aitken Investment Management

Looking to 2020: A Framework for Assessing Economic Risk

  • Financial system
  • Slowing global &

US growth

  • Asset/investment/

spending bubbles?

  • Policy error?
  • Late cycle?

Specific Risk Generic Risk Structural Conditions Cyclical Conditions

Internal to the make-up of the economy: asset bubbles, strength of the financial system, policy settings Ability of the economy to withstand an external shock

  • Trade war

escalation

  • Confidence
  • Corporate

credit Possible External Shocks

Source: Framework by Bernstein

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Aitken Investment Management

Looking to 2020: A ‘Muddle-Through’ is our Base Case

  • Cautiously constructive, but expect volatility
  • Global growth to remain positive, though continuing to slow from 2017 to 2019 levels
  • Slowing in 1H20, modestly accelerating in 2H20
  • Equity returns likely in the mid-to-high single digit range, given starting valuations are

elevated

  • A low growth, low inflation world likely means low rates for longer
  • Given this combination of factors, we still prefer companies that can generate internal

growth, but are vigilant about the margin of safety

  • Main risks we see:
  • trade war escalation
  • collapse in consumer confidence (fueled by a pullback in business investment)
  • policy uncertainty (elections, fiscal & monetary)
  • A left-field risk: sustained pick-up in inflation
  • Difficult to see where it comes from, but would materially change the outlook
  • Fiscal stimulus? Those who are willing, cannot afford to; those who can afford are

unwilling.

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Aitken Investment Management

The US consumer: in a more resilient place than pre-2009

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0% 20% 40% 60% 80% 100% 120% 140% 160% US Household Debt/Disposable Income (LHS) US household savings as % of Disposable Income (RHS)

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Aitken Investment Management

US banking system: much higher capital levels

6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0%

Tier 1 Risk Based Capital Ratio (US Large Banks)

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Aitken Investment Management

A combination of low inflation, low growth = low rates

  • 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 1971 1973 1975 1978 1980 1982 1985 1987 1989 1992 1994 1996 1999 2001 2003 2006 2008 2010 2013 2015 2017

OECD Inflation – persistent disinflation since the 70’s

  • 3%
  • 2%
  • 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 1971 1974 1976 1979 1981 1984 1986 1988 1991 1993 1996 1998 2000 2003 2005 2008 2010 2013 2015 2017 2020

Persistently lower growth

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Aitken Investment Management

Positioning / Sectors

Information Technology 25.6% Communication Services 22.3% Consumer Discretionary 22.1% Health Care 11.0% Consumer Staples 9.9% Cash 9.1%

Sector Allocation

  • Top 10 holdings
  • Microsoft (7.5%)
  • Facebook (6.3%)
  • LVMH (6.2%)
  • Estee Lauder (5.3%)
  • MasterCard (5.2%)
  • Visa (5.1%)
  • Amazon (5.1%)
  • Alphabet (4.9%)
  • Coca-Cola (4.6%)
  • The Walt Disney Company (4.2%)
  • Nike (4.2%)
  • Allocation by internal classification
  • 51.4% in Secular Growth (56.5% of equity)
  • Of which 8.1% in ‘Future Compounders’
  • 21.0% in Defensive Growth (23.1% of equity)
  • 18.5% in Cyclical Growth (20.4% of equity)
  • 9.1% in Cash
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Aitken Investment Management

Positioning / Regional

United States of America 79.7% France 6.2% Hong Kong (China) 2.7% Netherlands 2.4% Cash (AUD) 9.1%

Regional Allocation (by listing)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% USA Developed ex USA China Emerging ex China Cash (AUD)

Regional Allocation (by source of revenue)

AIM GHCF MSCI World

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Aitken Investment Management

Nike: A Compounder Capturing Several Structural Consumer Trends

  • Changing Consumer Preferences
  • Healthier lifestyles, particularly for younger and more affluent consumers
  • Athleisure as a dress code
  • Manufacturing Innovation
  • Improved sourcing, materials innovation, focus on reducing wastage
  • Supply chain flexibility
  • Building a Direct-to-Consumer Business
  • Leveraging digital platforms to build a community of fitness enthusiasts
  • Using data to better predict demand
  • Owning the distribution uplifts margins
  • Strengthening and Growing a Global Brand
  • Enabled by themes identified above
  • Global reach, local differentiation
  • Serving an increasingly segmented audience better
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Aitken Investment Management

Nike: Our Investment Thesis In Charts

  • 10%
  • 5%

0% 5% 10% 15% 20% 05/1999 05/2001 05/2003 05/2005 05/2007 05/2009 05/2011 05/2013 05/2015 05/2017 05/2019

A long term history of revenue growth...

Sales growth - T12m - YoY (%) Sales growth - T12m - QoQ (%) 10% 15% 20% 25% 30% 35% 40% 45% 50% 05/1999 05/2001 05/2003 05/2005 05/2007 05/2009 05/2011 05/2013 05/2015 05/2017 05/2019

Converted to sustained excess returns on capital...

Return on Invested Capital - T12m (%) Cash Flow Return on Invested Capital - T12m (%) 0.0 0.5 1.0 1.5 2.0 2.5

  • 60%
  • 50%
  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 05/1999 05/2001 05/2003 05/2005 05/2007 05/2009 05/2011 05/2013 05/2015 05/2017 05/2019

Underpinned by a sensible funding mix and substantial cash conversion

Total Debt/Total Assets (%) (LHS) Net Debt/Total Assets (%) (LHS) Cash Conversion (x) (RHS) 20 40 60 80 100 120 140 05/1999 05/2001 05/2003 05/2005 05/2007 05/2009 05/2011 05/2013 05/2015 05/2017 05/2019

Translates to long term compounding

Total Return (USD) Price Return (USD)

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Aitken Investment Management

Nike: Serving an Audience of One Nike By You

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Aitken Investment Management

Disney: Exclusive & Differentiated Content with Pricing Power

  • A World-class IP Generation Engine
  • Content originates in the Studios, but is then monetized throughout the business
  • A Collection of Truly Differentiated Assets
  • High-quality content
  • Theme parks, resorts
  • Long term sports broadcast rights – the ultimate live content
  • Globally Known Brand with Substantial Reach
  • Cross-generational appeal: kids love it, parents trust it
  • Addresses all four quadrants of the viewership audience
  • Addressing the Innovator’s Dilemma
  • Disney+ is about securing the future and building a much more direct relationship

than ever before with the Disney consumer

  • Managing the future of the traditional media networks through optionality with

ESPN+ and Hulu (though at a cost for the latter)

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Disney: Our Investment Thesis in Charts

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 1999/09 2001/09 2003/09 2005/09 2007/09 2009/09 2011/09 2013/09 2015/09 2017/09 2019/09

Driving a substantial increase in returns on invested capital since 2003…

Return on Invested Capital Cash Flow Return on Invested Capital

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 1999/09 2001/09 2003/09 2005/09 2007/09 2009/09 2011/09 2013/09 2015/09 2017/09 2019/09

Done with sensible amounts of leverage

Total Debt/Total Equity (LHS) Net Debt/Total Equity (LHS) Total Debt/EBITDA (RHS)

  • 10.0%
  • 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 1999/09 2001/09 2003/09 2005/09 2007/09 2009/09 2011/09 2013/09 2015/09 2017/09 2019/09

Revenue growth underpinned by pricing power and smart acquisitions…

Revenue growth - YoY - T12 months 20 year Compound Annual Growth Rate USA inflation Early 2000s recession Global Financial Crisis Star Wars hangover Source: The Walt Disney Company

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Disney: A Moat of Content

Source: Harvard Business Review, The Walt Disney Company Fort Bourtange, Netherlands. Source: Wikimedia Commons

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Aitken Investment Management

Portfolio Characteristics

Metric AIM GHCF MSCI World

ROIC (%) 18.5% 12.1% ROE (%) 23.8% 11.9% Gross Debt/Equity (%) 77.3% 147.0% Net Debt/Equity (%) 22.6% 79.9% Forward P/E (x) 25.25 16.62 Forward P/CFO (x) 20.46 11.13 FCF Yield (%) 3.24% 4.33%

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Aitken Investment Management

Returns

Calendar Year AIM GHCF Benchmark1 20152 2.5%

  • 5.8%

2016 3.8% 5.3% 2017 21.5% 20.1% 2018

  • 23.8%
  • 10.4%

2019 16.1% 27.0%

1: Benchmark changed from MSCI World (USD) to MSCI World Net Total Return (AUD) on 30 June 2019 2: Inception – July 2015 3: Calendar year to date (29 Nov 2019)

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Aitken Investment Management

This communication has been prepared by Aitken Investment Management Pty Ltd ABN 63 603 583 768, AFSL 473534. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The product disclosure statement (PDS) for the AIM Global High Conviction Fund, issued by The Trust Company (RE Services) Limited, should be considered before deciding whether to acquire or hold units in the fund. The PDS can be obtained by calling 02 8379 3700 or visiting www.aimfunds.com.au. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital.

Disclaimer