Fact Check: Hyperion Global Growth Companies fund

For Hyperion, this pandemic has given the firm a chance to demonstrate their bottom-up stock selection capabilities and the benefits of active management. 

Both the flagship Australian Growth Companies and its smaller Global Growth Companies fund have outperformed their respective equity indices since the start of the year, proving equity funds are indeed able to weather turbulent markets with the right stock selection. 

The Global Growth Companies fund was launched in June 2014, 20 years after its original Australian equity fund was launched in 1994. At the time, Hyperion said the decision to launch a global equivalent would allow it to “take advantage of a wider universe of high-quality businesses with larger addressable markets”. 

Managed by Mark Arnold, the firm’s chief investment officer, Jason Orthman and William Hartnell, the trio had managed the $293 million fund since its inception. 

It aims to achieve medium to long-term capital growth and income by investing in high-quality global companies. Taking a bottom-up growth approach, it seeks companies with a sustainable and transparent competitive advantage that can grow sales and earnings at a higher rate than the general economy.

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In order to sit in the portfolio, a company must have a high-quality business franchise, above average long-term growth potential, low levels of gearing and a predictable long-term earnings stream. 

In a quarterly update, the managers said: “Over long periods of time, a portfolio of quality companies can produce considerable outperformance against a benchmark of generally average businesses. A portfolio that can produce higher and more persistent earnings growth than its benchmark will outperform long term. 

“In good market conditions, earnings of structural growth companies should be higher than average while in periods of economic crisis, their earnings should be more resilient.”

Hyperion was known for its high conviction approach to fund management and this fund was no different with only 15 to 30 holdings at any one time, although no one stock could make up more than 15% of the portfolio. Cash was currently 8% but had ranged as high as 20% in the past. 

In line with its stockpicking approach, the allocations on the fund significantly differed to its MSCI World benchmark with large weightings to consumer discretionary stocks and information technology, and underweights to consumer staples, financials and healthcare. 

For example, the fund had 29% allocated to consumer discretionary equities compared to a 10.8% weighting in the benchmark and just 1.8% to financials versus 13% in the index. 

This was a boost for the fund in recent months as information technology and consumer discretionary stocks were among the best-performing sectors for the fund in April while consumer staples and financials were worst. 

From a geographic perspective, the fund had 63% allocated to the Americas, 23% to Asia Pacific, 14% to Europe and 0.2% to countries in the rest of the world.
With a 38% weighting to information technology, all five of the fund’s top holdings were technology companies. These were Amazon, Microsoft, Alphabet, Visa and PayPal. Microsoft, Alphabet and Amazon were all among top contributors to returns during April, contributing 3.5%, 3.3% and 1.4% during the month. 

PERFORMANCE

Since inception, the fund had been a strong performer and consistently outperformed its MSCI World benchmark and the wider global equities sector. 

Since it was launched in June 2014 to 30 April, the fund had returned 213% versus average returns by the global equities sector of 69% and of 95% by the MSCI World index. 

According to FE Analytics data, within the Australian Core Strategies universe, there were over 300 global equities funds and the Hyperion sat in the top 10 in terms of one-year performance. Over one year to 30 April, 2020, the fund returned 16.6% versus returns by its benchmark of 4.2% and by the global equity sector of 1%.

Referring specifically to the period including the COVID-19 pandemic, it had returned 10.1% from the start of the year to 30 April, 2020, compared to losses of 5.7% by the index and 7.1% by the sector. 

In its quarterly update for the first quarter of 2020, the firm said the low growth and slowing economic environment suited the fund.

“This low growth and slowing economic environment best suits Hyperion’s investment style. Hyperion has a portfolio of modern businesses that are typically better positioned to operate digitally and remotely,” it said.

“Through short-term market volatility and fundamental market corrections our disciplined portfolio construction process allows Hyperion to ‘top and tail’ the positions within our strategies in order to maximise the long-term returns that can be achieved.”

It particularly said recent performance had been helped by positioning moves including increasing cash weightings to double digits, a low active weight to financials, removing cyclical positions and increasing weighting to companies with robust business models.