This article was produced in partnership with Macquarie Asset Management.
The strategic minds at Macquarie Asset Management formed a powerful duo with Edinburgh’s long-term global equity investment management firm, Walter Scott, nearly two decades ago.
Establishing the Walter Scott Global Equity Fund resulted in the creation of an enviable defensive investment vehicle that has been quietly serving Australian investors ever since. And late last year Macquarie also launched a new unit class for the fund, an active ETF listed on the ASX.
The investment philosophy is simple. The team gets under the hood of each company to understand the pathway to long-term prosperity. Incredibly, the fund is returning 10.50 per cent p.a. over five years, assuming the reinvestment of distributions.
Walter Scott’s executive director Roy Leckie has been at the firm since before the fund was first established in March 2005. He explains that Macquarie scoured the globe in search of a select group of experienced investment managers in a handful of investment classes. Early discussions between the two parties quickly established a clear meeting of the minds that could offer a bespoke product to Australian investors.
With decades of experience, Walter Scott believes in a steadfast investment approach that remains grounded in tried and tested methodologies.
Leckie says Walter Scott’s investment philosophy is well established. There’s no single star stock picker trying to time the market inside the walls of this global investment stalwart. Instead, an entire team of diligent investment specialists scrutinise and analyse potential investment targets before pursuing stocks exposed to exciting medium and long-term growth dynamics that look beyond the hype in valuations in search of the long-term golden opportunities.
The investment team undertakes a huge amount of financial and industry analysis, conducts rigorous investigations and spends time with company management to get under the hood of businesses in a bid to learn whether there’s a genuine pathway to long-term prosperity as they compound and evolve and grow over time.
Investing with conviction
As a fundamental, bottom-up stock picker, Walter Scott is built on a defensive investment approach with a focus on promising, profitable companies with a sound ability to generate cash, with strong balance sheets and robust governance structures.
Not the type to do things by halves, the investment team travels extensively to meet directly with company management to form a first-hand view of the potential for long-term success. Walter Scott’s thorough research program and team-based approach ensures that only their best stock ideas make their way into the portfolio.
The experienced 20-strong team of investors have conviction in their decisions. While the fund’s portfolio is diversified, it’s also relatively concentrated, holding between 40 and 60 stocks. More than half of these companies have been held in the fund for over seven years, as of 30 September 2024.
The fund, which has a minimum investment timeframe of seven years, seeks to offer daily liquidity and is designed for investors requiring the ability to access capital within a week of request.
“Our core belief is that over short-term periods, share prices display a high degree of unpredictability and randomness, while over longer periods, equity prices are far more predictable and reliable,” Leckie says.
“Our job is to find those companies where superior rates of internal wealth creation is achievable over the long term, and then to not pay too much for them, so our clients can benefit.”
Walter Scott scours global markets searching for the world’s best companies; those capable of generating sustained wealth over the long term. He admits that chasing the opportunities in a market influenced by countless outside factors takes a degree of thinking outside the box.
“The team debates and discusses each company, using our combined diverse experience to draw on the successes and errors we’ve made over the years to bring our collective judgement to each decision we make,” he says.
When asked about the tools used to make investment decisions, Leckie is dismissive of newer investment approaches. Each decision is grounded in real intelligence, not artificial intelligence.
“We use traditional financial analysis,” Leckie says. “We don’t put annual reports through a computer programme or artificial intelligence . We read them and critique each one, which tells us a lot more about a company than artificial intelligence could.”
Reasons to be bearish
He’s the first to admit that investing will always be a challenge, regardless of external influences.
“In a world so caught up with the here and now, we believe it’s important to remain focused on the long term,” he says.
“We see equities as the best asset class for capturing new ideas and technologies entering the market, and I believe it’s within our capabilities to find the best of these companies that are either driving growth or building and benefiting from it.”
Leckie says too many investors spend time thinking about outside influences they have no control over, such as oil prices or who is going to be in the White House next. “Instead, investment managers would be much better served thinking about the things inside our control, like what up and coming companies are bringing to the world and how much we should pay for them,” Leckie says.
“Whether it’s healthcare, where we’re seeing incredible research and development and huge innovations in drugs and medical devices, or technology or the industrial space, where automation and efficiency is critical to the world around us. Or whether it’s addressing consumption issues in the global economy.
“There are so many new ideas and technologies entering the fray. Not to mention old and new challenges, and related opportunities around geopolitics, decarbonisation of the economy, changing demographics, longevity, too much debt, inequality.”
While it’s always challenging to pick the right stocks in the short term, taking a long-term approach can yield strong returns. “We very deliberately focus our energies on what we think will do well. The solid foundations built over the last 40 years allow this process to happen in a thoughtful, deliberate and structured way.
“The world is changing, and I believe that innovation combined with imagination in the private sector will go a long way toward resolving many of these challenges,” Leckie says.
“As a stock picker in the capital and equity markets, I’ve got a front row seat to watch that unfold and a responsibility to ensure our clients benefit along the way.
“Investors should find a manager whose investment philosophy they’re aligned to. Don’t concern yourselves too much with short term noise. It’s time in the market, not timing the markets that’s crucial.”
[1] As at 30 September 2024
