A recent report by Zenith Investment Partners highlighted that financial advisers looking for offshore investment opportunities for clients are increasingly being attracted to Australian-based international equities funds. The research house now has 20 locally based global managers on its approved product list (up from four in 2012), while the number of offshore international equities managers exceeds more than 40.
Zenith argues three factors are fuelling this growth; access to technology, overseas companies having improved transparency, and the sheer weight of money as Australia’s growing base of long-term capital makes it more appealing to corporates wanting a stable shareholder base.
On the first point, technology is often touted as a short cut for Australian-based fund managers and analysts to access industry events, markets and companies without the need for an air ticket. We take a different view.
In implementing our investment philosophy, maintaining direct relationships with companies and people at the coal-face of industry by making regular personal visits is extremely important. It is integral to the stock-picking process that underpins the $13 billion in assets under management (AUM) we have spread across six domestic and global long-only equities funds and which we believe gives us unique insights that cannot be gained from financial statement analysis alone.
The 16 analysts who comprise Cooper Investors’ Australian and international investment teams make more than 1,000 company visits a year. Our visitation program is arranged in-house by direct contact with the companies that we meet with. On a recent trip to Europe, the team covered 11 cities in 10 days – an exhausting process but one we find highly instructive.
These trips enable us to maintain relationships with senior management, board directors, and the chief executive or chief financial officer. We have found over the years that insights can be gleaned in a face-to-face exchange that conference calls or broker transcripts simply don’t convey. There is something unique about human contact and building rapport in person – it’s called ‘the vibe’ – that has proven to have genuine power when it comes to building conviction around a business or management team.
There is great power in repetition. Talking with the same management team at their offices year after year, comparing the ‘vibe’ from one meeting to the other, allows us to assess management and their actions over a long period of time. This knowledge and understanding of the management team gives a greater belief in their ability (or otherwise) to create value in the business.
Knowing management and their individual capabilities has also been instrumental in creating new investment opportunities when they move to manage other companies. An example of this is our investment in Brinks that came about from the Cooper Investors investment team building a relationship with Doug Pertz when he was chief executive at Recall. Upon learning of his new role at Brinks we were able to quickly assess the investment opportunity.
As investor commitment to meet with companies at their place of business is increasingly rare these days, we have found companies more willing to provide management access. Once a relationship is cemented, dialogue often becomes two-way, with management asking for our views on capital allocation, dividend policy, share buy-backs, industry trends or acquisitions.
Back home, all meetings are ranked based on our assessment of the value of the meeting and insights are shared, creating a pool of knowledge that the entire investment team can draw on.
We don’t just meet with listed companies’ management, in addition we seek out industry experts, suppliers, customers, regulators, other investors and even former employees. Typically, the teams will undertake at least 25 meetings with different stakeholders, often over a period of several years, on any single investment idea. This degree of intensity is made possible as we have limited our investment universe to our focussed watch list of around 200 stocks.
Our visitation program takes the team to some unusual places; Sarasota, Florida or Langbroek in southern Holland. We own 22 stocks in the US and only one company is based in Manhattan. Visiting these locations becomes an adventure in the overall research process.
There are no shortcuts in investing and our relationships with the people we’re investing in are of great importance in managing return and risk. Among the proliferation of data, quant systems and artificial intelligence in the market today, the unique insights gained from our visitation program are vital to identifying value latency. This has enabled both the hedged and unhedged global equities strategies to outperform their benchmarks over the long term.
Chris Dixon is global equities portfolio manager with Cooper Investors.
