While some fund managers fret over big economic trends, a high-performing fund manager at UK-based M&G, Greg Aldridge, keeps his eyes firmly on the individual merits of stocks when he manages his portfolio.

While some fund managers fret over big economic trends, a high-performing fund manager at UK-based M&G, Greg Aldridge, keeps his eyes firmly on the individual merits of stocks when he manages his portfolio.

Aldridge, who has run the M&G Global Growth Fund since early May 2007, relishes the freedom he says he has in picking securities for his £900 million (around $1.4 billion) fund, a liberty which he says means he is unconstrained by any corporate economic worldview from head office.

“I am buying equities for the long term. At M&G, there’s no requirement to fit into a `house view’ which is an incredible thing for a fund manager. If I find 60 companies that I want to own with a three- to five-year view, then there are a lot of returns to be had by being patient,” Aldridge told this publication in a recent interview.

He said he looks for firms with hard-to-copy features that give them robust earnings in different market environments, such as strong pricing power or a strong brand. Aldridge sees these businesses as "companies that I would love to manage, but hate to compete against".

An example of the kind of qualities he seeks are those firms which provide products and services that require the client to keep returning, such as telecommunications firms or makers of electronic products where after-sales service and replacement of parts is an important revenue stream. As examples, he cites the Swedish mobile telecommunication network giant Ericsson, the Japanese consumer goods firm Canon and the Japanese manufacturer of blood-testing equipment, Sysmex. All of them, he says, generate such follow-up business. 

So far, results appear to back up the wisdom of Aldridge’s approach, although there is always the chance that short-term performance can disappoint. Since Aldridge took control of the fund, it has delivered returns of 11.8 per cent (including reinvested dividends), compared with a fall over the same period of 4.3 per cent in the IMA Global Growth Sector, which comprises a total of 167 funds. (Of course, all investors must remember that track records are no guarantee of future results.)

Macro

Aldridge has macro views but the choices of investment are not driven by this; he looks at the firms from the bottom up, taking a pragmatic view of their qualities.  Considering how much debate there is at present over the risk of a “double-dip” recession, focusing on fundamental stock qualities appears to be a smart strategy.

Firms he likes include the likes of Intertek, a testing services company; G4S, a security firm that is seeing strong demand in a world ever more mindful of security; HSBC, a global bank with good exposure to the Asian success story, as well as Zurich Financial Services, and Banco do Brazil.

The fund seeks several key qualities in a firm for it to be held in the portfolio: long-term strength, cash-generation and hard-to-copy characteristics such as brands, pricing power and innovation skills; a reasonably good valuation is equally important. (There is no use a firm having strong qualities but at a rich valuation.)

"I'm looking for differentiated companies with something special that helps them to grow the fundamental value of their business over the long term," said Aldridge.

The fund holds a total of 60 names in the portfolio. “Sixty feels like the right number: it gives sufficient diversification but not too many, so you can see what is going on,” he said.

The M&G fund uses the HOLT investment screening process developed by Credit Suisse. “It is an incredibly powerful filter – I can get down to a very manageable number of companies very quickly.”

As ever, the fund industry continues to debate the pros and cons of active versus passive management. It is a debate that appears to have no clear victor or end in sight but in Greg Aldridge, the case for active investment appears to have a champion who gets results.