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What Makes a Great Company?

VIDEO: Tim Woodhouse, manager of the JPMorgan Global Growth and Income Trust, looks for companies to show strong organic growth - and pay a decent income

Holly Black 19 September, 2019 | 2:29PM

 

 

Holly Black: Welcome to the Morningstar series, "Why Should I Invest With You?" I'm Holly Black. With me is Tim Woodhouse. He's Manager of the JPMorgan Global Growth & Income Trust (JPGI).

Hello.

Tim Woodhouse: Hello. Thank you for having me.

Black: Pleasure. Thanks for coming by. Can I ask a bit about what the Trust does?

Woodhouse: Absolutely. So, the Global Growth & Income Trust is essentially exactly what it says. We're looking for really great ideas from all around the world, which will generate good growth, which will see capital appreciation, but the fund also has the ability to pay a 4% dividend yield to our holders every year. So, it's in a way a bit of having your cake and eating it. We are not constrained to only stocks with high dividend yield; we're not only paying the yield out of that; we pay it out of reserves. And what that really allows us to do is just find those wonderful companies all around the world, of which there are there are many, but not all of them pay a dividend. And so, by taking the breadth of our resources, the wonderful analysts that we have at JPMorgan, the work they do with companies all over the world, what we can do is we can find those best ideas. And that's what you really get with this Trust is those best ideas and you also get an income, which we know especially in a low yield world is ever more important.

Black: But obviously, navigating the entire global market can't be easy, particularly at a time when there's so much uncertainty. You know, we're talking about the recession word and wondering if stock markets have peaked. How do you – where do you even start?

Woodhouse: It's a challenge. But we're lucky that we do have wonderful resources and wonderful people to work with. And for us, what we – you're absolutely right. There's so much noise out there, it's so easy to get caught up in what's going on in the macro economy, what's the Fed going to do, what on earth is going on with the trade war. And I think you have to really just push through that. You have to find the companies that regardless of whether we have a recession in the next year or two, the companies in five years' time are going to be worth significantly more than they are today.

Now, that doesn't mean we ignore the economic outlook completely. I think it's very clear that the industrial economy is in a challenging spot once again, just as it was back at the end of 2015, and into 2016. And trade wars really aren't good for confidence. And so, when you're thinking about CEOs in industries thinking about whether to invest, it's natural to expect some softness. But I think that's quite well understood. The thing I'm much more focused on really is the consumer. The consumer has become much more important to the wider economy versus 10 years ago. And so, I'm watching jobs data carefully. I'm watching consumer confidence data carefully. I don't see the leverage in the system, which leads us into another 2008-2009.

So, if we have a minor recession, which I still think is probably unlikely, but if we did, I think we would get through that actually quite quickly and in quite good shape. So, what that leads me to think is really the focus should be on the company fundamentals. And we work with 50-plus analysts we have all over the world to find those best ideas and look for those which are not dependent just on the next six months and the outlook and what happens there, but those which have really great characteristics to really great companies that will generate significant amounts of cash flow for us as shareholders in the future.

Black: And what are a couple of those characteristics that make a great company?

Woodhouse: I think it's always important to look for some kind of organic growth. We've seen with a lot of industries over the years that if your industry isn't growing, you face a multitude of problems, whether that's continually cutting costs to try and get that margin profile up. Well, that can only go on for so long. Whether it's doing unnecessary acquisitions just to try and pretend that there is still some kind of growth going on or trying to buy yourself out of a hole. So, organic growth in an industry is a very good starting point because it allows you to make mistakes. If your industry is growing, everyone has execution missteps. And so, you have to accept that, but you have to understand what your margin for error is. And growth really does give you that little bit more of a margin for error.

Black: Super. Well, thank you so much for your time.

Woodhouse: Thank you.

Black: And thanks for joining us.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
JPMorgan Global Growth & Income Ord329.00 GBX-0.30

About Author

Holly Black  is Senior Editor, Morningstar.co.uk

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