Global Franchise Strategy
Global Franchise Strategy

Global Franchise Strategy

 
 
 
Summary

The Global Franchise Strategy is a concentrated equity strategy that offers a differentiated approach to investing in global stocks. The strategy seeks to generate attractive returns by investing in high-quality franchise businesses, characterized by dominant intangible assets, high returns on operating capital employed (ROOCE) and strong free cash flow (FCF) generation. To help achieve this objective, the strategy employs a “buy-and-hold” approach to construct a concentrated portfolio, with stock selection informed by rigorous fundamental analysis.

 

 
 
Investment Approach
Philosophy

The team believes that a portfolio of high-quality companies, whose primary competitive advantage is supported by dominant, hard-to-replicate intangible assets, has the potential to generate stable, consistent returns and help preserve capital. In the team’s view, this involves investing in companies that can potentially compound shareholder wealth at a superior rate over the long term, while offering relative downside protection. The team’s research shows that these high-quality franchise companies, or “compounders,” which exhibit characteristics such as strong franchise durability, high and recurring cash flow generation, pricing power, low capital intensity and minimal financial leverage, have generated strong returns in both inflationary and deflationary environments.1

 
Differentiators
Defensive characteristics

The team’s research shows investments in high-quality companies, which exhibit characteristics such as strong franchise durability, high and recurring cash flow generation, low capital intensity and minimal financial leverage, have generated competitive returns across market cycles.

Managing the risks that matter

The team’s criteria and disciplined investment process create a concentrated portfolio that is highly differentiated from the benchmark. The team attempts to minimize loss of capital, rather than tracking error, by focusing on franchise resiliency, management quality, financial strength and valuation.

Differentiated returns

The team’s goal is to compound shareholder wealth at a strong rate over the long term; therefore, capital preservation is key. Because of the specific investment criteria and the disciplined manner in which it is applied, the Global Franchise Strategy has the potential to offer: attractive long-term return potential with lower absolute volatility than traditional benchmarks; a strong bias towards capital preservation; and low annual turnover due to a long-term investment horizon.

 
 
 
Investment Process
1
Investable universe

Companies are screened based on financial metrics that the team believes are associated with strong franchise businesses. The key characteristic of these companies is they combine sustainable, high unlevered ROOCE with low volatility of unlevered EBITA margins resulting from a combination of recurring revenues, high gross margins and low capital intensity. This combination helps support strong free-cash-flow generation, which, crucially, must be either reinvested at similarly high returns or distributed to shareholders.

2
Security selection

The team looks for high-quality businesses with the following characteristics: difficult-to-duplicate intangible assets that help to protect the durability of the franchise; a sustainable, high ROOCE on an unlevered basis; high gross margins and low capital intensity; a reliably recurring revenue stream; and financial strength and capable management. The team monitors for signs of franchise abuse and how management allocate capital, looking for appropriate investment in intangibles (such as advertising) to grow the business for the long term, or any signs of prioritization of short term earnings-per-share targets taking precedence over high sustainable long-term ROOCE.

 
 
Investment Team
Head of International Equity Team
26 years industry experience
Managing Director
24 years industry experience
Executive Director
20 years industry experience
Executive Director
20 years industry experience
Executive Director
16 years industry experience
Executive Director
18 years industry experience
Executive Director
10 years industry experience
Executive Director
8 years industry experience
Vice President
11 years industry experience

Static File Component

 
 
 
 

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