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.
This week, our speakers are Greig Bryson and James Kinghorn, Nikko AM Global Equity Portfolio Managers. They manage the Nikko AM Global Equity Fund, rated 5 stars by Morningstar.
Which sector shows the greatest promise in 2022?
In our view, 2022 is a year of regime change for market leadership: high-growth stocks have been decimated by inflation and rising interest rates. We focus on sectors like healthcare with sustainable pricing power and a proven track record of generating their own cash and not relying on abundant liquidity in capital markets.
What is the greatest economic risk today?
The biggest risks are generally well known, and these are inflation and the ongoing war in Ukraine and its potential to escalate. The biggest risk to equity markets are central banks, their response to these factors and the potential for policy errors.
Describe your investment strategy
We look for companies that can sustain a high return on invested capital or improve their return on invested capital over time. We call these companies “future quality” – and we want them to grow and reinvest cash back into their business to generate high, sustainable returns.
Which famous investor do you admire?
Kinghorn: There are a lot of excellent investors. I guess the person that comes to mind is the one who got me interested in investing and valuation in the first place: Dr. Ben Nunnally. He taught me in college.
Bryson: Anyone who can keep their cool and keep looking for opportunities in an increasingly noisy world.
Name your favorite “Forever Stock”
There is no eternal stock. The past few months have shown how quickly stock market darlings can fall out of favor. Competitive advantages don’t last forever. Similarly, changes in the cost of capital can have a considerable impact on a company’s ability to grow and on its valuation.
What would you never invest in?
football club! It’s the best way to turn a big fortune into a smaller one!
Growth or value?
Our investment style has a modest growth bias. We are looking for companies that can reinvest their money back into the business as long as they can maintain or improve their return on investment. Growth and value are measures based largely on historical data and we are truly indifferent to a stock’s classification as long as it can achieve this improving performance.
House or Pension?
Kinghorn: If I had to choose, I’d probably say retirement because there’s more flexibility, but both are great long-term investments.
Bryson: A boarding house offers more diversification, but our home is more comfortable right now — despite the energy bills.
Crypto: Brilliant or bad?
Kinghorn: As a currency, I would say it’s not fit for purpose. It is far too volatile to be used as a stablecoin. The technology, however, has great potential.
Bryson: Brilliant when there’s excess global liquidity, probably bad when there isn’t?
How can we increase diversity in fund management?
Kinghorn: It all depends on the culture of the asset management companies; a company’s culture attracts a more diverse workforce. I think that has changed, but we still have a long way to go.
Bryson: Greater recognition of the value of non-financial or non-business qualifications. With the right support, you can learn them on the job. Intellectual curiosity and the ability to build strong relationships aren’t dictated by everything you can find in Excel.
Have you ever engaged with a company and been particularly proud (or disappointed) of the outcome?
Any engagement where the company really wants to listen is worth it. Sometimes it can be just as informative when it’s not!
What’s the best advice you’ve ever received?
Kinghorn: Don’t invest in anything you don’t understand.
Bryson: From the CEO of one of the companies we’ve invested in – never employ someone you wouldn’t want to have a second coffee (or a second beer) with.
What would you be if you weren’t a fund manager?
Kinghorn: I have no idea. When I was young I always wanted to be a chef but I certainly don’t have the talent.
Bryson: Something to do with sports, and preferably football. Based on capacity these days, I should probably be the person selling the pies at halftime.