'We Want Firms with Pricing Power'

VIDEO: As inflation returns to global markets, Comgest Growth World fund manager Laure Negier thinks businesses with pricing power can thrive

Holly Black 9 June, 2021 | 2:12PM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Laure Négiar. She is Manager of the Comgest Growth World Fund. Hello.

Laure Négiar: Hello, Holly.

Black: So, I'm sure the clue is in the name, but I'll ask anyway. What does the fund do?

Négiar: The clue is in the name. The fund is global equity fund, long-only, completely unconstrained, so benchmark agnostic and very concentrated, 30 to 40 stocks.

Black: So, what are some of the main themes driving your investment decisions at the moment?

Négiar: There are many underlying themes. They are – actually, they've been driving this year, but they've been driving the past several years as well. So, we are bottom-up stock pickers. So, we look at trends via the lens of our companies. But some of the megatrends that have been driving our portfolio over the last few years and Covid has accelerated some of these trends are digitalization, emerging markets exposure, productivity gains have been important too, aging population. Those are some of the underlying secular trends that have driven our portfolio. Market share gains also, very simply. But certainly, the digitalization trend was front and center last year for some of our companies and continues to be today.

Black: And obviously, you say you take a bottom-up approach. But if we think about things on a geographical basis, so there are areas you are finding more opportunities in at the moment?

Négiar: So, actually, because we are completely benchmark agnostic, over the years, our fund, geographically speaking, has looked very different from the benchmark. So, we've had a lot less US than the benchmark, again purely bottom-up, and more Japan and more emerging markets. We have found some great companies in those regions that we think weren't very well-known and have driven great alpha for us. Keyence, for instance, Kweichow Moutai in emerging markets. So, those companies have really driven some nice alpha for us. And again, we can end up very different from the benchmark simply because we are looking for the best business models growing dynamically at the best possible price. So, we remain underweight the US today, not because there is anything wrong with the US market. It's obviously a wonderful market. But relative, since we are free to go wherever we like, we have found some great opportunities of stocks in Japan and emerging markets.

Black: So, I think one of the things on investors' minds at the moment is the rise in inflation. How are you thinking about that?

Négiar: Yeah, everyone's had to put their thinking caps back on and go back to the history books because we haven't had meaningful inflation in a while. I think, very basically, as long as our companies have strong pricing power, we think they can do well, including in an inflationary environment. And so, that's where we really check and check again. Actually, in inflationary times and in non-inflationary times, we think overall our companies have really good pricing power.

Just an example. LVMH, the global luxury giant that most everyone knows. In the midst of the pandemic, so in May 2020, when virtually all of its stores were closed, they come out and raised the prices for Louis Vuitton and Chanel, the brands by 5%. That's a sign of incredible confidence, but it's also a sign of pricing power. And when you have that kind of pricing power, well, you have to be mindful of inflation. It shouldn't throw your P&L off.

Black: And you've got the word growth in the title of your fund, and it's been a great few years for growth. But how do you feel about the value comeback that seems to be happening this year?

Négiar: Currently, yes, the market is expecting a very big rebound for some of the so-called value sectors. For instance, more than a 400% bounce for the energy sector. And so, the companies in our fund this year won't be growing as fast as the benchmark. They were much more resilient last year. They won't be bouncing as hard this year. I think the most important questions for value versus growth is beyond 2021 what does the growth profile look like. We feel confident our companies can continue to grow their earnings at a teens annual pace. It's unclear to us at this point that that's the level the benchmark can sustain. So, if we continue to have that gap between the growth of our companies and the growth of the benchmark, we think over the medium term the fund will have good results for its investors.

Black: Laura, thank you so much for your time. For Morningstar, I'm Holly Black.

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Holly Black  is Senior Editor, Morningstar.co.uk