Winners of the Morningstar Fund Award are recognized as funds that have added the most value within context of a relevant peer group for investors over the past year and over the longer-term.
To help our readers better observe what makes a fund a winner fund, we sent out questionnaires to the winning fund teams earlier and asked them to shed lights on their team structure, how various risks have affected their investment decisions, and the major portfolio changes over last year, etc.
Category Winner: Best Global Equity Fund - Natixis International Funds (Lux) I – Harris Associates Global Equity Fund R/A (USD)
Key Stats
Inception Date: 2011 Jul4
Morningstar Rating (as of 2014-02-28):
Total Net Assets (Mil, as of 2014-02-28): 1,096.60 USD
Manager: Clyde S. McGregor / Robert A. Taylor
Manager Start Date: 2002 May17 / 2002 May17
M: Morningstar H: Harris Associates Global Equity Fund R/A (USD) investment team
M: Could you highlight any major changes you made to the portfolio over the course of 2013? Were there any particular holding that drove the fund’s performance for the year?
H: Over the course of 2013, the Fund’s exposure to Europe (including the U.K.) increased from 28% to 42%, while its weighting in Japan decreased from 22% to 12%. These weightings are a byproduct of our stock selection, which is based on a commitment to finding undervalued companies with high-quality fundamentals.
The top contributor to the Fund’s annual performance in 2013 was Daiwa Securities Group (2.4% weight in the Fund as of 12/31/13), Japan’s second-largest securities firm. Daiwa released its fiscal first-half results during the fourth quarter that showed pre-tax profit at the highest level since the company started reporting in 1995. Revenues rose across the board in retail, wholesale and asset management, and of special note, the wholesale banking division became profitable for the first time since 2009. Although Daiwa’s stock price has almost tripled over the past year, we continue to believe the company’s stock has significant upside and will remain a good investment for our shareholders.
MasterCard (4.2% weight in the Fund as of 12/31/13) also was a top contributor to the Fund’s performance in 2013. The company reported what we consider to be strong earnings throughout the year. We recently met with MasterCard’s CEO Ajay Banga, who stated that the company remains focused on “digital conversion” – paper to electronic forms of spending – and expanding market share through new co-branded products and commercial cards, along with other initiatives. Furthermore, management continues to repurchase shares and increase its dividend to reward shareholders, which remains a priority at MasterCard. We continue to believe that MasterCard has a unique combination of competitive strength, secular growth, and low capital intensity.
M: What is your economic outlook for 2014 specific to the markets you cover and how are you positioned to take advantage of opportunities and/or mitigate potential risks?
H: Despite the strong past performance of global equities, we believe there is still value in global equity markets. Certainly, stocks are not selling at the incredible bargains they were in early 2009 or even early 2012, but with global economic growth appearing to be poised to accelerate, and with stock valuations that are still attractive, we believe there are reasons to be confident that global equities will continue to be an attractive asset class.
We seek out undervalued companies, not countries. Therefore, our country weights are a fallout of our security selection. As of year-end, the Fund was most heavily weighted in the U.S. (44%), followed by Europe including the U.K. (42%). Japan (12%) and Australia (2%) accounted for the remainder of the portfolio. We continue to believe that securities in the emerging markets are fairly valued, and therefore the Fund has no exposure to the region.
M: Can you comment on the risks facing the global economy, including the tapering of bond buying in the US and the growth headwinds facing the emerging world? How do these risks affect your investment decisions?
H: While we always seek to be cognizant of current risks facing the global economy, our process at Harris Associates focuses on researching individual companies as the basis for all of our investment decisions.
We think that all too often, investors associate political and macroeconomic instability with the long-term viability of a company’s cash flow stream. Our fundamental analysis aims to uncover a company’s value when others overlook it. The companies we seek have strong balance sheets and management teams, and trade at discounts relative to their intrinsic business values. We continue to think that this focus on company fundamentals is the surest path to long-term wealth creation.
M: How is your investment team organized? Have there been or do you anticipate any changes to the investment team or structure over the course of the year? Do you anticipate adding to the team in the near future?
H: The global research team at Harris consists of analysts who search for undervalued stocks across all sectors. The team is a combination of our U.S. and international research teams. All analysts are generalists across sectors, and the international analysts typically cover two distinct regions across sectors. We believe that not restricting our analysts to specific sectors allows us to better compare and value businesses on an absolute basis around the world.
After rigorous qualitative and quantitative analysis, both U.S. and international analysts present new stock ideas to their respective Stock Selection Groups, which meet weekly to discuss and vote upon new stocks for inclusion in the Firm’s Approved Lists. Once the voting members approve of a stock, the security is added to the appropriate Approved List and is then available for each portfolio manager to purchase for their portfolios. Global portfolio managers pick from both the U.S. and International Approved Lists.
Harris does not anticipate any changes to the investment team or its structure over the course of this year, nor does the firm have specific targets set for hiring staff. We have successfully hired several outstanding individuals over the last several years, and we are always interested in having a dialogue with talented individuals who may fit well within our culture.
M: Can you highlight any areas where you feel that the investment team or the investment process can improve upon?
H: While some may think we could improve our process by constantly adapting to market trends, we are proud of our unwavering adherence to our value investing process. We believe that buying businesses at discounts to their intrinsic value is the most intelligent approach to investing. As such, our portfolios will not produce benchmark-like returns, and our results may temporarily lag benchmarks for a period. It is our belief that our investment process will produce returns that are in excess of market indices over the long term.
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Additional Notes
This document is issued by NGAM Singapore, a division of Absolute Asia Asset Management Limited, for information only and it does not constitute an offer to anyone or a solicitation by anyone to subscribe for shares of the Fund as it does not have any regard to the specific investment objectives. Absolute Asia Asset Management Limited is authorized by the Monetary Authority of Singapore (Company registration No.199801044D) and holds a Capital Markets Services License to provide investment management services in Singapore. NGAM Singapore is a business development unit of Natixis Global Asset Management, a subsidiary of Natixis that is the holding company of a diverse line-up of specialized investment management and distribution entities worldwide. Past performance of the Fund or managers, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the Fund or the manager. The portfolio holdings, characteristics, weightings, and allocations presented in this material represent the portfolio as of the date indicated and are subject to change without notice. The value of investments and the income accruing, if any, may go up or down and investors may lose the full amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of exchange fluctuations that may cause a loss of principal. Investments in the Funds involve risks, which are fully described in the prospectus. The Funds may use derivatives for hedging and/or investment purposes. The net asset value of the Funds may be subject to volatility as a result of their investment policy and/or use of financial derivative instruments. Investors should consider the Funds’ investment objectives, risks, charges, and expenses and read the Singapore Prospectus and Product Highlights Sheet carefully and discuss with their financial adviser to determine if the investment is appropriate for them before investing. However if an investor chooses not to seek advice from a financial adviser, he/she should consider whether the product is suitable for him/her. Absolute Asia Asset Management Limited: 1 Robinson Road #20-02 AIA Tower Singapore 048542. NGAM Singapore: 10 Collyer Quay #14-07/08 Ocean Financial Centre. Singapore 049315.
