Identify high-quality companies, prepare analyzes on the competitive advantages and specificities that can lead to returns over time and, finally, the objective of keeping them in the portfolio even in the presence of possible short-term risks, as long as do not affect the underlying strategy. It is the philosophy that Kristian Heugh, head of the Global Opportunities team at Morgan Stanley IM, shared in a meeting with FundsPeople in Milan within the framework of the Salone del Risparmio 2024.
A constant optimization process with a focus on intrinsic value
“Given that our companies tend to have better balance sheets than the market, they achieve more control over their future by not depending on the dynamics of the economic cycle or the level of interest rates to continue their business and execute their strategy,” explains the manager. . He adds that about 75% of your expected alpha comes from idiosyncratic or non-systematic sources.
According to the expert, There is a constant optimization process that allows them to eliminate certain values whose price-to-value ratio has approached onethat is, in value they are no longer as undervalued as before, so they buy certain securities that are trading at a much greater discount compared to their intrinsic value.
“This process applies to all companies and is a well-established investment methodology. If we look at the current portfolio, we see some of the most attractive positions from a free cash flow standpoint since we started the strategy, and We continue to identify high-quality companies around the world that trade at deep discounts to their intrinsic value“, it states.
The strategy
According to the manager, the particularity of Morgan Stanley IF Global Opportunity, with Rating FundsPeople in 2024, can be summed up in one word: culture. “We emphasize curiosity, perspective and collaboration to build a strategy that works not only in the current year, but for the next ten or twenty years. This is a key aspect, because establishing a good culture and having the right objectives allows us to act as long-term investors on behalf of our clients,” he says.
He emphasizes to his clients the importance of synchronization with the market and not market timing. “It can be difficult to think in terms of years when the markets move day by day. But when you They link the incentives of each investor to the profitability of the next three yearsinstead of linking them to the profitability of the current quarter or year, a climate is created that encourages flexible thinking, the willingness to change, even when it may seem negative in the short termand, ultimately, trust,” he continues.
Heugh believes there are great opportunities to invest in high-quality companies that are trading at a price well below their intrinsic value. “We believe quality is about sustainable competitive advantages, growth opportunities, the ability to be innovative or protect against disruptive change, financial strength and minimal ESG externalities,” he explains.
Strategy update
The manager concludes by commenting that they have done minimal changes in portfolio In recent quarters, given his conviction in the long-term investment strategy of the positions they currently hold.
Between the new positions added in recent quartersthe manager talks about the market leaders in little covered sectorsas live entertainment, cybersecurity and footwear companies.
: Curiosity, perspective and collaboration for a strategy that works for the long term){kind=link}