Many country weightings in Greystone Global Equity look rather similar to the MSCI World index, and lead manager Jeff Tiefenbach acknowledges that the fund's active decisions in regional and country weightings "are fairly immaterial at this point."
But that's where the similarities end. Though the fund is well diversified geographically, the stock-selection discipline of Regina-based Greystone Managed Investments Inc. is very much active. Available to retail investors through Bridgehouse Asset Managers, Greystone's global mandate is designed to be a "best-ideas" portfolio of stocks from North American and international markets.
Greystone is one of Canada's largest institutional managers, with $31.6 billion in assets under management. Its global equity universe consists of an estimated 5,700 stocks that have market capitalizations greater than US$500 million. However, the fund's portfolio is mostly large-cap, with some mid-caps, and the managers generally avoid small-cap companies.
On the basis of quantitative criteria, the managers assign scores to each stock in the global universe. The scoring process seeks to identify companies that have demonstrated above-market earnings growth, have earnings estimates that are increasing relative to market expectations, and have profitability that is superior to the market.
More detailed fundamental research is carried out on the 570 stocks that Greystone's scoring process identifies as being in the 10th percentile. The goal is to build an "all-weather" portfolio of 40 to 80 stocks with the potential to outperform the fund's market benchmark in both up and down markets.
Critical to the selection process is the valuation discipline to ensure that the investment team "doesn't chase growth," says Tiefenbach, senior vice-president, international equity. For example, the managers avoid companies that are in the top decile or two of valuation within their market.
During the more detailed research phase, a company’s valuation is compared to its own history as well as peer groups to assess the attractiveness of the investment. "This becomes evident when we look at the fundamentals of the portfolio," says Tiefenbach. "Earnings growth is nearly double what the market is overall." This is all achieved while not paying a price/earnings multiple that is higher than the market.
Tiefenbach says Greystone's team differs from pure growth managers in that the team seeks some kind of momentum in the earnings growth of a company. This approach, he adds, can result in a much broader category of companies and wider sector and industry diversification.
Though macroeconomic considerations are an aspect of Greystone's investment process, they are analyzed primarily in terms of their impact on individual stocks. For instance, with the U.S. economy looking relatively strong over the last six to nine months, "we do favour banks in the U.S.," says Tiefenbach. Among the fund's recent largest holdings is the American financial-services giant JPMorgan Chase & Co. (JPM).
Another sector in which the U.S. is a global leader is technology, says Tiefenbach. The global fund recently held a 17% weighting in the technology sector, with Microsoft Corp. (MSFT) among the top 10 holdings.
As for overseas markets, Greystone -- which has an office in Hong Kong -- invests not only in the developed overseas markets, but also in emerging markets like China. Tiefenbach says that sometimes the best opportunities lie in owning a strong domestic brand and sometimes the opportunities lie in owning a strong global brand that has good market share in China.
An example of a strong domestic brand is the stock holding Anta Sports Products Ltd. (ANPDY), the leading domestic sportswear manufacturer in China. "It has a strong position in the growing sportswear market," says Tiefenbach, "particularly given the trend in urban consumer spending in China."
Adding to its strength, the company is a key sponsor of the Chinese Olympic team, as well as the national basketball association of China. "The company is building its brand and over time," says Tiefenbach, "we think it can grow 10% a year in earnings."