16 January 2018 George Fraise, Founding Principal, Sustainable Growth Advisers

Equity manager in the spotlight: George Fraise

Seeking sustainable growth in a changing global economy

Global growth picked up in 2017, with the Organisation for Economic Co-operation and Development (OECD) estimating real GDP has risen by 3.6%1. Economic activity has continued to improve in Europe, China has surprised on the upside, while Japan and the US have seen solid economic data too.

On the surface, these conditions may seem to prove a challenge to our approach in the short term. We seek to identify high-quality global companies that have sustainable growth, strong pricing power, growing revenues and at attractive valuations. In periods of rising optimism, the sustainable growth characteristics of these quality businesses aren’t always fully rewarded, particularly when market returns are very strong (and likely unsustainable).

 

A buying opportunity

However, the current economic landscape also provides opportunity. We find that when high-quality, long-duration growth businesses are temporarily out of favour, it can provide excellent opportunities for our approach to add value for the long term. We use these market conditions to reallocate capital from less attractively valued outperformers to future opportunities which offer better upside potential.

In spite of the improving economic picture, there may also be shocks on the horizon. Changing global monetary policy is likely to lead to higher volatility, and we anticipate higher dispersion among index companies, and expect the focus of investors to move back to fundamental company drivers. This shift should prove supportive for the types of quality business we invest in. 

Danone is a good example of the type of company we select. It sells products in over 160 countries, is very cash-generative, and has been able to grow on a sustainable basis for a long time. The Indian HDFC Bank is another. It is demonstrating good growth as it brings modern retail practices to the country, providing a burgeoning middle class with new and broader banking options.  

 

Focusing on the long-term fundamentals

We don’t focus on the short term – it is nigh on impossible to forecast it. We take a longer view. And looking further down the road, we are very excited by the prospects of the businesses we have in our portfolio. We expect them to grow their earnings and cash flows at 15-17% over the next few years, which should compare favourably with the broader market. Such growth should be rewarded, and because the valuation of the portfolio is very attractive today, we are particularly excited by the returns prospects over the long term.  

 

Playing to our strengths

Alliance Trust’s alliance of best ideas plays to our strengths. We have a successful history of managing concentrated mandates of between 25 and 55 companies. Focusing on just 15-20 best ideas is additive to the process, allowing us to select our highest conviction picks, from which we believe we can generate the best returns.

Find out more about George Fraise’s investment approach:

 

Biography

George is an Analyst, a Portfolio Manager and a member of the Investment Committee, Advisory Board and Executive Committee of Sustainable Growth Advisers (SGA). Prior to founding SGA in 2003 in conjunction with Gordon Marchand and Rob Rohn, George was Executive Vice President of Yeager, Wood & Marshall, Inc from 2000 where he was a member of the Investment Policy Committee, a member of the Board of Directors and Co-Manager of the John Hancock U.S. Global Leaders Growth Fund and the U.S. Global Leaders Growth Fund, Ltd, an offshore fund. He has a BA from Trinity College and an MBA in Finance and International Business from the Stern School of Business at New York University. George co-manages the SGA portfolio for Alliance Trust with Gordon and Rob, and together they average over 30 years of investment experience.

 

Investment style 

SGA’s investment style is to identify those few truly differentiated global businesses that possess strong pricing power, offer recurring revenue generation and benefit from attractive, long runways of growth.



1 Real Gross Domestic Product (GDP) is a measurement of economic output that accounts for the effects of inflation or deflation. It reports the GDP (a measure of the economic output/the volume of goods and services produced in a given year) as if prices never went up or down, which gives a more realistic assessment of growth.

OECD November Economic Projection: http://www.oecd.org/eco/outlook/economic-outlook/

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