In this series of short profiles, we ask top fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they would never buy.
Our interviewer this week is Christian Schneider, Senior Portfolio Manager for the Brunner Investment Trust (BUT).
Which sector shows the greatest promise in 2022?
We try not to make downcalls on the sectors. As fundamental stock pickers, that is not where our expertise lies and we prefer to look for companies whose business models can outperform regardless of economic cycles. In this sense, all sectors present opportunities. However, this year we have certainly seen steep valuation declines in high-growth tech and industrial stocks. Where earnings growth still looks robust, this opens up opportunities.
What is the greatest economic risk today?
stagflation; that is, persistently high inflation combined with high unemployment, like that seen in the 1970s. Usually, when growth falters, he deals with inflation. However, in the 1970s we saw that it did not work due to successive political errors from various angles. Something similar is happening today, but with the addition of geopolitical risk in all markets. We have already seen a downward revision to earnings forecasts and now expect further compression.
Describe your investment strategy
We want to provide capital growth and a growing dividend over time. We believe the best way to do this is to look for companies with sustainable, compounding business models and strong cash flows. These companies can then either continue to grow or return the money to shareholders in the form of dividends.
With this in mind, we review all stocks against our investment philosophy of quality, growth and value. In terms of quality, we look for companies with stable above-average returns (thanks to superior management), competitive advantage and strong balance sheets, and other related factors. In terms of growth, we look for companies that experience long-term secular growth, taking a full-cycle approach. At the same time, we take a sensible view of valuations, using an inverse discounted cash flow method to ensure that the current share price correctly reflects the expected returns of the business.
Which famous investor do you admire?
It’s probably boring and predictable, but it would have to be Warren Buffett. Although everyone seems to admire him, hardly anyone in practice follows his long-term approach – which is really impressive. He is often misclassified as a high value investor. It’s really about not paying too much for quality.
Name your favorite “Forever Stock”
Easy! Brunner! More seriously, I have a belief in Brunner’s strategy, philosophy and process. Although the portfolio management team has changed, ceteris paribus, it would be a first personal choice. I may be biased, but the record speaks for itself.
What would you never invest in?
Personally, I steer clear of non-cash flow generating assets such as gold. It is not a reliable source of investment for my risk appetite.
Growth or value?
At the end of the day, I believe in investing in good stocks! While I seek sustainable growth companies, I also take a holistic view of a stock, which means not paying too much for it. Not all actions fit into one or the other category.
House or Pension?
Pension. It’s definitely more exciting in my opinion.
Crypto: Brilliant or Bad?
Both. First of all, it is important to understand that crypto is not just bitcoin, it has many aspects. For example, blockchain is a great technology that is increasingly being used for things like transactions. On the other hand, at the moment there is not much clarity on the value of crypto as a currency and a store of value. For that, we will have to wait and see.
What can be done to improve diversity in finance?
It’s a good question. Diversity itself encompasses many forms, from gender to age, race, sexuality and disability. Across fund management, we see a bias towards an older, male demographic.
To change that, we need to become more attractive to underrepresented groups and individuals. This can happen through more inclusive policies in the workplace, but also through educating potential recruits. As a company, we recognize that their differences can be a strength and it is important to communicate this.
Have you ever engaged with a company and been particularly proud (or disappointed) of the result?
We regularly engage with companies and in doing so we are supported by our excellent engagement team here at AllianzGI. In February, we engaged with IG Group, which is a leader in online financial trading. We advised the company to pay a growing dividend to underline the board’s confidence in its growth prospects.
At the same time, we discussed the need for IG Group to improve the market’s perception of the quality of its business. Shortly thereafter, in its July results, IG Group announced a new capital allocation strategy that was very similar to our proposals. We were very satisfied with it.
What’s the best advice you’ve ever received?
Know your areas of expertise (and try not to go overboard on those you don’t).
What would you be if you weren’t a fund manager?
I would have loved to be an Olympic gold medalist in the 400m!