Sarasin’s Guy Monson key points from an interview earlier this year:
Current themes are: global convergence; global pricing power; efficiency and automation; corporate restructuring; and intellectual property and innovation.
Their flagship Sarasin CI EquiSar Global Thematic fund has outperformed the MSCI World Index in nine out of 10 years, returning 106.2 per cent compared with 72.3 per cent from the index since inception.
Other bullets:
- will continue to see by historic standards exceptional levels of earnings growth from global companies
- fixed interest markets are substantially overvalued, and against that equity returns, both earnings yield and dividend yield, look exceptionally attractive
- the world is essentially operating off one interest rate somewhere between the dollar and the euro, which encourages Mittal Steel in India, Cemex in Mexico and Gazprom in Russia to raise funds, make foreign acquisitions and build new emerging markets-led industrial giants
- ‘Property has done well, the pound has done well, British gilts have done well, British corporate bond yields have narrowed, and again the British stock market has pretty well beaten everything else. But the best of British decade is drawing to a close’
- M&A: average free cashflow yield of European and UK large cap shares is around 6 per cent - that’s the cash left in your bank account at the end of the year after you’ve done all your capital expenditure and operations but before your dividend - which is near a record high. Most importantly it’s more than 1 per cent above the single-A corporate bond yield. That means that any acquirer can go out, buy a company, fund it at the corporate bond rate, and he’s immediately in the money
- a housing crisis in Florida and California is rocket fuel for growth in the rest of the emerging world, particularly in the Gulf where you have a perfect dollar peg. These countries have economies that are bowling along and negative real interest rates. So while this dollar peg lasts, we are in a situation where for the first time if America sneezes the rest of the world need not catch a cold.
- ’In terms of my themes, I am particularly keen on intellectual property and research and development, which are key criteria in my stock selection.’
- Mega versus mid caps: ‘a mundane mid-cap company which is being chased by a speculative private equity house you pay 17 times earnings per share, but if you want to buy the world’s biggest international banking network, which probably comes with Citibank, you pay nine times earnings.
- Trailing 4Q cash dividends as a ratio of reported earnings are at very low levels: the 80 year average is 56% versus the curent ratio of 30% for S&P 500 companies. AS of 31 Mar 07, S&P 500 dividends per share were $25.49 versus the GAAP reported earnings per share of $84.72.
