Launched in March 1999, Martin Currie Global Portfolio Trust (MNP) is listed on the main market of the London Stock Exchange.
As lead manager since 1 October 2018, Zehrid Osmani, who has 23 years of investment experience, has significantly improved the trust’s relative performance.
He was formerly a senior portfolio manager and head of European equities research at BlackRock, with a proven track record in fundamental research and unconstrained investment, and is now head of Martin Currie’s global long-term unconstrained team. Martin Currie became a division of Franklin Templeton Investments following the acquisition of its former parent Legg Mason in July 2020.
MNP’s concentrated, high conviction portfolio held 32 global equity positions at the end of November 2020. While there are no limits on its construction, the combination of stocks in the fund must not lead to an unintended reliance on a particular macroeconomic factor such as interest rates or commodity prices.
The trust had not employed gearing since 2008, though it is permitted to gear up to 20% of NAV. However, on 24 November
2020, a new £30m debt facility was fully drawn down. At end-November, the trust had gross and net gearing of 10.2% and 6.2%, respectively.
Since 1 February 2020, the trust’s objective has been to generate a total return in excess of the total return of the MSCI AC World Index – previously a capital return in excess of a less broad global index.
|Market cap||£318 m|
|Premium to NAV||1.4%|
|Premium to NAV**||1.4%|
*Excluding income. †Including income. As at 19 January 2021
The trust is now ahead of its benchmark over the past one, three, five and 10 years in both NAV and share price terms. It
has also considerably outpaced the performance of the broad UK market during these periods, demonstrating the potential
benefits of investing overseas.
In recent months, says Osmani, MNP’s relative performance has benefited from its sector allocations as well as stock selection. Positive contributors to the trust’s performance include its holdings in Alibaba (e-commerce), Atlas Copco (industrial tools and equipment), Hexagon (industrial software), Straumann (dental equipment and supplies) and Taiwan Semiconductor Manufacturing Co (TSMC).
Detractors from relative performance include not holding Apple (consumer electronics, software and services) and Tesla (electric vehicles and clean energy), which have appreciated in value, along with the trust’s holdings in CSL (biotechnology), Coloplast (medical devices) and Illumina (biotechnology).
Investment strategy – proprietary, bottom-up stock selection
Zehrid Osmani is head of Martin Currie’s nine-strong global long-term unconstrained team and aims to generate a total return above that of the MSCI AC World Index by focusing on high-quality, undervalued growth stocks with the potential to outperform consistently. The manager has an unconstrained, high-conviction approach and invests with a long-term, five- to 10-year horizon. There is a systematic three-step investment process that builds conviction at each stage.
First, the total universe of around 2,800 listed global stocks is screened down to an investible universe of about 500 companies and then a research pipeline of 90+ names is prioritised to identify companies with a combination of quality, sustainable growth and an attractive valuation. The team believes companies that can generate a high and sustainable return on invested cash, above their weighted average cost of capital, can generate above-average total returns over the long term.
Next, fundamental analysis is based on eight key criteria: industry analysis; a company’s growth drivers; returns; financial strength; accounting; corporate ethos; ESG profile; and valuation.
Companies considered for inclusion are likely to have a dominant position and pricing power in a market with high barriers
to entry. The manager seeks businesses with structural growth prospects, high returns on invested capital, strong cashflow
generation and a quality management team with a strong corporate culture. To ensure a consistent approach, a proprietary research template is compiled for each company reviewed, and each is given a conviction rating between 1 (strong buy) and 5 (sell).
Finally, each position is weighted appropriately, aiming to ensure a meaningful contribution to the fund’s returns.
The portfolio reflects three overarching themes, which Osmani believes will span multiple decades and should be amplified
in a post-pandemic world: the future of technology; demographic change; and resource scarcity. Within these he sees a wealth of opportunities including increased infrastructure spending, such as on 5G networks, healthcare and railways; green
initiatives including renewable energy and electric vehicles; robotics and automation; increased demand for cloud computing and online services; and cyber security.
The manager’s view – expectation of a gradual recovery
Commenting on the macro backdrop, Zehrid Osmani suggests “not much has changed in recent months”, and he expects a gradual rather than a V-shaped economic recovery. The manager says that “in the summer of 2020 there were hopes of
a rapid recovery, but the euphoria died down as economies went back into partial lockdowns”.
As a result, he does not expect economic activity to return to pre-pandemic levels until 2022, but acknowledges that within this there is major forecast risk. While Osmani views the recent news about successful Covid-19 vaccines positively due to
their high levels of efficacy, he wonders how quickly we can return to a ‘normal’ situation, saying he has question marks
about the ramp-up in vaccine production and the speed of mass inoculation. The outcome of the vaccine roll-out is likely to determine how quickly the economy rebounds.
The manager says there has been a sizeable global stimulus to offset the negative effects of the pandemic, amounting to around 13% of global GDP (a range of 8–16% for the major economies). However, he is unsure as to how fast the support will be able to flow into the real economy.
Osmani is keenly aware of the deterioration in the labour market, which will undoubtably weigh on economic momentum. He predicts 2021 will be an interesting year. Consensus expectations are for a weak first half with a sharp recovery in H2 when year-on-year comparisons will be easy, but “how the market behaves around the recovery is difficult to predict”.
There were sizeable earnings estimate downgrades in the first and second quarters of 2020, but these have proved too aggressive. In aggregate, companies announced better-than-expected results in the second and third quarters of 2020, which was supportive for equity markets.
The manager reports that in recent company meetings, discussions have included what measures firms are taking to deal with the pandemic and how the Chinese economy is recovering, as this is seen as a blueprint for progress in Europe and the US. While there are high levels of uncertainty, Osmani says companies are generally optimistic about their prospects in 2021.
He suggests stock market volatility will remain high, although he is hopeful about further upside as the roll-out of Covid-19
vaccines should help normalise the economy. He believes bond yields will remain low for a prolonged period, noting that messaging from central banks reveals their internal models are not indicating inflationary pressures, so interest rates “will be lower for longer”.
Osmani also does not see a risk of higher inflation as there are strong deflationary undercurrents, including economic disruptions and a lack of wage inflation. He argues that “investors are challenged in a low-yield world, which is positive for equities as earnings yields are much higher than bond yields”.
Previous review: Martin Currie Global Portfolio Trust aims for growth