Guinness Global Innovators Fund

The Guinness Global Innovators strategy invests in high-quality companies exposed to secular growth themes.

Companies that can sustain faster growth than the market can outperform over a cycle. Investing for growth, however, is beset by pitfalls which the Guinness Global Innovators strategy is designed to avoid.

In the search for growth, the past is often a poor predictor of the future. We therefore start by looking for profitable companies that are exposed to long-lasting, secular growth themes.

To identify companies which can harness these themes in the long term, we look for those businesses with quality characteristics such as high returns on capital, strong balance sheets and understandable and measurable business models.

A key risk of growth investing is overpaying for future growth. By applying a valuation discipline to stock selection, we aim to ensure we are not chasing fads.

To limit stock-specific risk while investing with conviction in every position, we structure the portfolio with an equal-weight approach, bringing discipline and repeatability.
 

The investment process begins by identifying innovation themes – secular growth themes in the market that are driving growth, disrupting incumbent business models or technology, or significantly improving current products or services. We utilise third party research and analysis to broaden our understanding of growth trends in the market. We identify around 10 themes and update them annually. We then identify companies with exposure to these secular growth themes which have a market capitalisation greater than $1bn.

With the initial Global Innovators universe created, we then employ screening to identify high-quality companies. We only want to invest in profitable companies with strong balance sheets and good growth prospects, as these quality characteristics help to protect against the downside risks in growth investing. The simple quality criteria screened for are (i) return on capital greater than cost of capital last year (ii) debt/equity < 150%, and (iii) positive earnings growth expected next year. The companies left after the quality screen make up the investible investment universe for the fund and typically have better than average financial metrics showing faster profit growth, larger profit margins, and less susceptibility to cyclical pressures.
 

Within the investible Global Innovators universe, we prioritise candidates for further due diligence on growth, quality and valuation characteristics. We then subject all potential investments to detailed fundamental analysis, with proprietary modelling, an assessment of a stock’s return potential, risk analysis and ESG integration. Above all, we want to understand what competitive advantages or barriers to entry are sustaining a company’s return on investment to determine whether its returns will persist. We also recognise that sentiment and hype can sometimes drive up the valuations of growth companies and so we try to maintain a strict value discipline. We want to avoid paying up for high levels of expected growth in the future as we know, on average, very high growth expectations are often not met, and this can have a detrimental effect on a company’s valuation. We therefore look for companies offering good value relative to their sector, to their historic valuations, or in absolute terms. Our portfolio is fixed at 30 positions, so a new holding must present a better risk/return profile than an existing holding.

It is often easier to find companies to buy that look cheap than it is to identify those companies you own which should be sold. We consider sell discipline as important as selecting companies for purchase and continuously monitor the companies we hold in the Fund. The six core reasons we may sell a company are outlined below.

1. The company's exposure to a secular growth theme has dimished
2. Their balance sheet becomes stretched
3. The valuation becomes too rich, or no longer offers compelling upside
4. There is a change in a company’s capital budgeting approach
5. Our original investment thesis no longer holds
6. We find a more compelling investment idea