Quality Growth Boutique

What is the purpose of your company? Not what it does, but its purpose. Its goals. Its compass. A meaningful answer is usually pretty short, understood by a layman, and can provide a light to follow through tough decisions. The pressure for companies to rethink their purpose, and the sharing of rewards across a company’s stakeholders, has risen sharply.

Get Social, ‘S’ from ESG, wrong and a company stands to lose customers and employee loyalty, and damage value of the business. The priority of owners in how socially responsible investments are made, and the expected returns, are key. Liquid markets can deliver rapid change in ownership. Can the two coexist? Owners are as much part of the solution as part of the problem.

China is relying on consumer spending for growth, with consumption driven by running property prices, rapidly rising incomes and debt. China’s property prices reached 84% of those in the U.S., yet disposable income is just one tenth. As the trade fallout with the U.S. saps demand for jobs – red flags are up.

Matthew Benkendorf, CIO of the Quality Growth Boutique, reviews portfolio performance, shares his outlook and discusses why he believes a bottom-up approach is the best way to navigate the difficult investing landscape ahead.

For years, CEOs across the world have diluted their focus by serving on the boards of unrelated companies. Average time commitment for a board position at an S&P 500 company is around one month! Shareholders don’t get a vote on CEO focus – how can they get the undivided attention they deserve?

Dominant technology companies protected by awesome ‘network effects’ can benefit society and investors. But monopoly control of communications or private information can have unexpected consequences for users. How bad it can get depends on who’s running the company and who runs the regulators. What is ‘network effect’ and how can it be controlled?

China’s ambitions being challenged is creating significant uncertainty. Alongside this, MSCI and FTSE appear to be stumbling over each other to add China weight to their indices. The potential to reshape the benchmarks has significance – for both active and passive investors. Is the herd being led down a dark alley?

While a big payday for a CEO is not headline material anymore, it still makes most people queasy. When a CEO earns $20 million in one year, it would take someone making $100,000 a year more than four lifetimes to earn the same amount. Balance matters.

A growing emerging markets middle class and increased domestic demand may reduce poverty across the planet, and also provide fertile ground for investors. Companies that can consistently deliver to increasingly wealthy EM consumers stand to profit.

In this Viewpoints paper, Igor Krutov, Director of Research, explains why most European banks suffer from structurally poor profitability. Even “average” U.S. regional banks are earning ROTEs (returns on tangible equity) in the mid-teens, something most European banks can only dream of.

As bottom-up quality growth investors, our choices are not generally driven by macro factors such as inflation. But it is important to test the strength of our portfolio against macro challenges.

Brazil has sold off as the market fears the country is in trouble. If the huge pension program is not reformed, it will add expense to a budget already in deficit – and reform has proven extremely difficult. On top of this, there will be a new President elected in October. The race is so open and full of new and anti-establishment candidates, there is a fear that reform may languish along with the country’s finances.