Brett, who recently took the reins of the fund following co-manager Sarah Whitley’s retirement after 37 years at the helm, sees considerable long-term investment opportunity in the technology sector.
He explains, “It feels a bit like the internet did 15 years ago, where it’s relatively easy to see that robotics could be more significant than it is today. But we’re still at the early stages, moving away from robots being used to make cars in developed countries into the whole matrix of opportunity in new industries and moving outside of the developed countries.”
It comes as no surprise then that the fund is particularly heavy in companies ready to drive technological change, rather than support existing production and manufacturing methods.
Brett explains, “We have around a quarter of the portfolio in internet-related businesses and another 15% of the portfolio in factory automation and robotics-related businesses. We think both of these areas are major growth areas for the future.”
The weightings come as a result of a rigorous bottom-up process the manager follows when deciding which companies to add to the portfolio. With around 1,000 businesses up for selection, Brett begins by identifying those he feels have the best long-term growth prospects in the Japanese market. From there it’s a case of working out a reasonable price to pay for a company’s shares.
This involves the fund’s five-pronged approach to figuring out what the company is worth and how to situate it among its peers.
Brett explains the initial conversations he has with his analysts, “Our main focus is looking at the five most important factors to us, the first of which is industry background - is the business in a growing industry or a shrinking industry, and are companies making good returns or not? Then we think about the competitive advantage of the businesses and consider the factors that mean the companies we invest in are able to produce higher returns over time.”
The manager then starts to analyse company management, deciding whether their actions demonstrate a history of treating shareholders fairly. The penultimate consideration involves the financial characteristics of the business. It’s important to Brett that a potential addition to the portfolio is able to provide evidence of a sound balance sheet as well as earning good returns on capital employed.
Only then, after focusing on quality and growth prospects, does the manager allow himself to think about the valuation of a firm.
It is this tight, step-by-step methodology that has steered Brett towards building the fund’s holdings in robotics, internet-enabled technology and automation. Current names in the portfolio include Japanese technology conglomerate SoftBank, web hosting company GMO Internet, e-commerce business Start Today, and mechanical component supplier Misumi.
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