By Royal London Asset Management together with FundRock Distribution
Royal London Asset Management (RLAM) has partnered with FundRock Distribution S.A, who will distribute RLAM’s products and services in the EEA. This follows the United Kingdom’s withdrawal from the European Union and ending of the subsequent transition period, as UK Financial Services firms, including RLAM, can no longer passport their business into the EEA.
In 2017, RLAM launched two global equity strategies – Global Equity Select and Global Equity Diversified. The strategies have since produced four years of attractive absolute and relative returns, continuing an impressive track record from a strategy that was initially launched in 2002. Using a markedly differentiated stock selection approach, the strategies have delivered a consistent track record of performance across economic cycles and differing periods of style leadership.
Given the polarisation of Growth and Value style returns over the recent market cycle, it is a good opportunity to look back and understand the drivers behind performance. What we see is evidence of an approach that has idiosyncratic company insights driving outperformance, without depending on a favourable style environment.
A differentiated approach to peers
We believe that to deliver superior risk-adjusted returns you need to have a competitive edge in comparison to your peers. Our Economic Return Framework and Corporate Life Cycle Concept form the basis of our investment process and provide the team with a high-quality global set of data that can be used to identify companies which are both creating wealth for equity shareholders and fundamentally undervalued.
Proprietary informational and analytical advantages
Our Economic Return Framework covers more than 5000 stocks across the globe and has been built to standardise both balance sheet and cashflow data across regions, sectors, timelines and accounting practices. We believe that this provides us with an advantaged start point of economic value comparisons across our investible universe.
Our Corporate Life Cycle Concept (figure 1) uses this standardised real economic return data to categorise companies into five distinct phases, each representing a different stage of a corporate’s life cycle. This allows us to better compare and evaluate companies within each stage, mindful of the knowledge that the key drivers of success in each are different.
Source: RLAM for illustrative purposes only
Our Shareholder Wealth Creation test seeks to identify companies that are creating shareholder wealth with superior business models, management skill and capital allocation opportunities, recognising that the drivers of this wealth creation are Life Cycle specific. For example, a Compounding business creates wealth via maintaining high returns on productive capital and growing; however, a Turnaround business should actually look to shrink weak assets, as a route to improve its returns on capital.
Stock selection and portfolio construction
We perform fundamental and valuation analysis on companies with the strongest evidence of long-term wealth creation. Importantly, the path of analysis is again informed by proprietary Life Cycle stage considerations and with reference to industry structure and company-specific sources of competitive advantage. There is also an explicit focus on Life Cycle specific ESG (environmental, social and governance) analysis, further differentiating our work.
Through our process we identify three categories of companies with material ESG issues: clearly positive, challenging but attractive and clearly negative. Positive companies, like those who are part of the environmental solution in clean tech, can be great investments – the challenge can be buying at an attractive price. Clearly negative is a deal-breaker and we avoid these companies. Challenging but attractive companies need further investigation beyond a simple industry or sector-led approach.
These analyses give us a pool of stocks that provides the source of potential investments for inclusion in our global equity strategies.
Source: RLAM for illustrative purposes only.
Ultimately we believe that this process leads to portfolios that are balanced across regions, sectors, styles and life cycle segments. Our approach provides investors with a differentiated return stream that has delivered across different style cycles
Consistent alpha – seeing through the market cycles
As we enter a new phase in the global economy, our global equity strategies are designed to have high levels of stock specific risk and limited aggregate style exposures. This means that should our idiosyncratic stock picking alpha be as successful as it has been in the last 19 years, the strategies have the potential to perform on a relative basis across multiple market and socio-economic scenarios.
Source: RLAM as at 28 February 2022. Performance of the RL Global Equity Select Strategy is based off gross end of day prices.
Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested.
Source: RLAM as at May 2022.
For more information contact Javier.Igartua@Fundrock.com
Investment Risks:
Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.
Concentration risk: The price of strategies that invest in a reduced number of holdings, sectors, or geographical areas may be more heavily affected by events that influence the stockmarket and therefore more volatile.
EPM Techniques: The strategy may engage in EPM techniques including holdings of derivative instruments. Whilst intended to reduce risk, the use of these instruments may expose the strategy to increased price volatility.
Exchange Rate Risk: Changes in currency exchange rates may affect the value of your investment.
Liquidity Risk: In difficult market conditions the value of certain strategy investments may be difficult to value and harder to sell, or sell at a fair price, resulting in unpredictable falls in the value of your holding.
Emerging Markets Risk: Investing in Emerging Markets may provide the potential for greater rewards but carries greater risk due to the possibility of high volatility, low liquidity, currency fluctuations, the adverse effect of social, political and economic instability, weak supervisory structures and accounting standards.
Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the strategy to financial loss.
For Professional Clients only, not suitable for Retail Clients.
This marketing material is a financial promotion and is not investment advice. Telephone calls may be recorded. For further information please see the Privacy policy at www.rlam.co.uk.
Issued in May 2022 within Europe (ex-Switzerland) by FundRock Distribution S.A. (“FRD”) the EU distributor for Royal London Asset Management Limited. FRD is a public limited company, incorporated under the laws of the Grand Duchy of Luxembourg, registered office at 9A, rue Gabriel Lippmann, L-5365 Munsbach, Luxembourg, and registered with the Luxembourg trade and companies register under number B253257. Page 23, FRD is authorized as distributor of shares/units of UCIs without making or accepting payments (within the meaning of Article 24-7 of the 1993 Law), as updated from time to time. FRD is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF). Portfolio management activities and services are undertaken by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL, UK. Authorised and regulated by the Financial Conduct Authority in the UK, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.
