In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This week our interviewees are Lindsay Scott and Paul Loudon, investment managers at Walter Scott & Partners and part of the investment team which sub-advises the Morningstar Silver-rated BNY Mellon Long-Term Global Equity Fund and 5-star rated BNY Mellon Global Leaders Fund.
Which Sector Shows the Biggest Promise in 2023?
Our investment team at Walter Scott are fundamental bottom-up stock pickers, meaning that in our day-to-day research, we aren’t looking at the merits of a sector or geographical region, but instead we identify the best companies that strengthen our portfolios. This approach can be counter-cyclical; however we invest on a long-term horizon and seek out world-class companies that we consider to be capable of generating superior real return for the coming five to ten years – and beyond!
What's the Biggest Economic Risk Today?
Lindsay Scott: One area I think there is unanimous agreement is the complete economic disaster that would arise from a military conflict across the Taiwan Strait. Given Taiwan’s significant presence in the global semiconductor supply chain, the manufacturing of products where semiconductors are used – vehicles, industrial equipment, medical supplies, and smartphones – would be decimated, not just in China and Taiwan, but globally.
Paul Loudon: Looking back over the past year, it’s the abrupt nature of rate increases we’ve seen globally and the multiple lagging impacts that have yet to emerge, which are concerning. We obviously saw stresses in the global banking system earlier this year, but it’s hard to say what hidden risks and headwinds are still lurking beneath the surface.
Describe Your Investment Strategy
Over the course of our 40-year history, our philosophy as bottom-up, non-benchmark-led, research-backed investors remains the same. The BNY Mellon Long-Term Global Equity Fund, in particular, aims to provide investors with a favourable long-term real rate of return by investing in a concentrated, high-conviction portfolio of 40-60 quality companies. Across our strategies, we invest with the intention to buy and hold stocks on a long-term investment horizon to tap into the power of compound growth, and provide investors exposure to the best quality companies that global markets have to offer.
Which Investor/s Do You Admire?
LS: I’ve been at Walter Scott & Partners for twenty years, and I’ve learned everything I know from the firm’s founders, Walter Scott and the late Ian Clarke.
PL: Chuck T. Akre, François Rochon and Peter Seilern are three career investors that have a philosophy of long-term quality growth investing, similar to our own, and I enjoy reading up on what the three of them have to say.
Name Your Favourite 'Forever Stock'
LS: Novo Nordisk is a specialty pharmaceutical company powered by a strong pedigree in research and development. This year marks the company’s 100-year anniversary, and during its history, it’s been a pioneer in the diabetes space, a legacy which is being continued today.
PL: Edwards Lifesciences is an American medical technology company that thinks very long-term, reinvesting a high percentage of its sales back into research and development. The company is looking to solve a problem which is still very much under-penetrated by treating aortic stenosis, a disease that will only rise in prevalence as ageing populations grow worldwide.
What Would You Never Invest In?
We would never invest in companies that are loss-making or that aren’t currently growing. Ultimately, we’re not looking to invest in a company that doesn’t have a proven, profitable business model or good attractive unit economics, in the hopes that one day the company ‘might’ become profitable.
Growth or Value?
At our core we are growth investors. However, like many other investors, you might say we maintain a GARP or ‘Growth at a Reasonable Price’ mentality, as we do always look for businesses that demonstrate quality growth that is sustainable over the long-term.
House or Pension?
Pension. A house is a really important asset and for many people, represents the most significant asset they’ll own during their lifetime. However, if you had extra cash, you wouldn’t look to buy a spare house. We would always reiterate the importance of re-investing that money back into the stock market, and optimising the pension contributions available to you.
Crypto: Brilliant or Bad?
We want to be optimistic about future disruptors but crypto-assets are not yet well-regulated, there isn’t enough trustworthy, accessible information out there, and there remain bad actors in the space. From an investment perspective, crypto-assets have also not proven to be good inflation hedges or stable stores of value. While blockchain is a fantastic technology which absolutely has a place in the financial landscape, it too hasn’t yet found its footing.
What Can be Done to Improve Diversity in Fund Management?
We feel it’s all about education, and it really has to be at the grassroots level. Ultimately, open-minded hiring can only go so far if a significant portion of the current working population still aren’t comfortable talking and learning about investing. The concept of investing can be really scary, and investment management can seem like a whole other universe. So we think it’s important to talk to young people in schools and colleges, from all different backgrounds, about investing and the great opportunities anyone can access through a career in fund management.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
Our 20-person team debates extensively to ensure that only businesses which meet our stringent investment criteria and standards are added to the portfolio, so we generally only invest in companies that already have excellent ESG profiles. That said, we do proactively engage when there are clear opportunities to effect positive change.
What’s the Best Advice You’ve Ever Been Given?
LS: “If you don’t understand it, don’t invest in it.” No one will pat you on the back because you invested in a complicated company, there are always opportunities to be successful by investing in straightforward companies.
PL: Taking inspiration from Benjamin Graham’s allegory of “Mr. Market”, I like to think of the market not as an all-knowing, all-consuming, incredibly rational machine but instead it’s helpful for investors to interpret the market as a manic depressive agent, swinging rapidly from wild euphoria to completely irrational pessimism.
What Would You be if You Weren’t a Fund Manager?
LS: I was close to going into medicine when I was applying to university but decided to focus on Biology instead, and as a generalist investor, I now have the opportunity to meet with pharmaceutical companies. Outside of investment, I love learning about the pharmaceutical space and I find the progress we are making in science just astounding.
PL: Thinking realistically, I’d likely follow in the footsteps of both my parents who are practicing lawyers, but if I let my imagination run wild, I’d love to be a professional golfer.
