Transcript:

Martyn McCathie: Hi, I’m Martyn McCathie, Investment Specialist at Wilson Asset Management, and today I’m sitting down chatting with WAM Global (ASX: WGB) Portfolio Managers Catriona Burns and Nick Healy. Catriona, we have just finished global reporting season, what were your key takeaways?

Catriona Burns: The US economy continues to be very resilient, we’ve still got low unemployment, we’ve got some wage growth, the inflation numbers have been stickier, perhaps more than Chairman Powell would like, but we are heading in the right direction, but not yet at the kind of 2% target level. The actual earnings of companies though, have been remarkably resilient and we’re super pleased with the companies that we have in the fund, which have continued to perform strongly.

Nick Healy: Yeah, I think a great example of that, at least from earnings season recently, was our holding in ICON (NASDAQ: ICLR). They had really good order growth and they grew the pipeline of work by over 10%. Really strong cost control allowed them to grow earnings by over 20%. And equally important, management was very upbeat about the prospects as we look forward. And if we think about how we’ve positioned the fund for the earnings season, as much as the things we’ve held, we’ve also taken a conscious decision to avoid certain parts of the market. We’ve avoided more discretionary consumer goods, cyclical industrials. And because of our valuation discipline, just those very expensive stocks.

That worked to our advantage just because those were some of the more challenged parts of the market this earnings season. And all in all, we are very happy with how our companies came through earnings season and the results they delivered.

Catriona Burns: If you apply that more broadly across the world it’s a very similar story when, in Europe, we’ve seen certainly services companies do better than goods companies, the manufacturing sector has been under pressure, so more cyclical businesses under pressure.

In Japan, they’re dealing with inflation for the first time in decades. You have seen a lot of companies struggling to actually pass through that inflation.

Yeah we’re generally very pleased with the companies in the portfolio but it’s interesting the nuance between the different sectors.

Martyn McCathie: Fantastic, thanks. Obviously there has been a lot of noise recently in the media, geopolitical tension, interest rates, potential recessions. As investors, how do you guys navigate that environment?

Nick Healy: Yeah absolutely there are certainly a lot of big picture events that could drive the markets in one direction or the other. You listed quite a few of them, but those are certainly all things we keep an eye on. I think being cognizant of the fact that it is an uncertain period, we’ve positioned the portfolio to benefit across a range of outcomes by owning companies that are both high quality and that have these multi -year earnings drivers that will occur regardless of economic outcome. It gives us a lot of confidence that the fund would perform well.

Catriona Burns: And our view is ultimately that earnings drive share prices and often uncertainty and concern about events such as the ones you mentioned can really create opportunities. We saw that, for example, in the COVID sell -off period where we got lots of really exciting opportunities. You can in those at those times invest in businesses that perhaps you didn’t have the opportunity to because you thought the valuation was too expensive or you couldn’t see the catalyst. Then you see these big sell-offs at different points that give you opportunity. For example, Quanta Services (NYSE: PWR) was a company that we invested in in 2020. They upgrade and maintain the transmission grid across the US and the communications infrastructure. We took the view that with everyone moving to Zoom and Teams and having to do video conferencing with cloud transitions, demands on electricity and transmission grids across the US was going to continue. We knew the management team, they had their teams out on the ground upgrading and maintaining the transmission grid despite all the noise from COVID because everyone needed to be online all the time.

And so we took a view that the market sell-off was a massive opportunity. We took advantage of the dislocation.

There’s always going to be noise and events to think about, but we think that creates opportunities that we can take advantage of.

Martyn McCathie: Management is critical to your process. How do you ensure you invest in the right people?

Catriona Burns: Absolutely, it is. The management teams that we invest in are really key in terms of executing because we’re trying to identify companies that can grow sustainably over time and if you have a bad management team running the ship, it can really do some damage and affect that ability to execute. A crucial part of our process is getting on the road meeting the management teams of the companies that we invest in, competitors, suppliers, former employees, really to understand what’s going on in that business and what the strategy is and watching them execute over time.

We travel across the US, Europe, Asia, to really identify those high quality management teams.

Nick Healy: And a great example of that is our holding in ICON. We have been very impressed with Dr Steve Cutler and his team in how they have stewarded the business over the last few years. They acquired PRA Health, and integrated that well, putting them in a leadership position in the industry. They have had fantastic cost control, which has allowed earnings to grow really well. There’s great opportunities ahead for ICON, and we do think this is the right management team to make sure that they make the most of these opportunities. Absolutely management is critical and across our portfolio we really believe in the management teams that we have invested with.

Martyn McCathie: Catriona and Nick, thank you for your time today, and thank you for watching.

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