Stock investing tips, 4 surprise picks from top-ranked fund managers – Business Insider UK

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  • The First Eagle Global fund is the number-two stock fund of the last 20 years, and its managers target companies with strong fundamentals but prices that have been damaged by “exogenous uncertainty.”
  • Matthew McLennan and Kimball Brooker detail the stocks they expect to outperform for the next decade, along with the challenges that have made them an appealing opportunity.
  • They spoke to Business Insider at a time the Wuhan coronavirus outbreak was sending shivers through global markets. Meanwhile, trade tensions have weighed on non-US investments for years. 
  • Visit Business Insider’s homepage for more stories.

For an investor, timing isn’t everything. Bravery is important, too.

That combination of timing and willingness to bet on companies that are dealing with forces beyond their control — but will overcome them in time — has helped the First Eagle Global fund stand out from its competition.

According to Kiplinger, the fund’s annual return of 10.4% over the past 20 years makes it the number-two global stock fund. Last year it beat its benchmark and competition in 2019 with a 20.2% return.

Co-manager Matthew McLennan has had a long time to practice that approach because he’s been leading the fund since September 2008, when global markets were in chaos as a result of the Global Financial Crisis that kicked off the Great Recession. He explained his approach this way:

“We tend to build positions where we like the endogenous integrity of the business model and the management team, but there’s some sort of exogenous uncertainty, and that gives us the window buy into,” he said in an exclusive interview with Business Insider.

McLennan and his longtime co-manager Kimball Brooker say they’ve put that philosophy into play throughout the last decade, focusing on companies with strong balance sheets that are managed for the long term. They say their process that involves more “humility” than making long term forecasts about GDP growth and index targets.

Their approach might be especially relevant today, as global indexes and emerging markets in particular have been rocked by concerns about the effects of the coronavirus outbreak that’s killed more than 1,100 people. While the duo aren’t making specific trades in response to the outbreak, they say it’s happening in a difficult investing environment with high valuations and signs China’s economy was already slowing.

“It’s fair to say that if we step back from the coronavirus itself and we look at where markets are as a whole, it does raise the broader question of the degree of complacency which is embedded in asset prices,” McLennan said. “The coronavirus certainly against that backdrop of asset prices doesn’t make us feel more confident.”

But they’re confident in these four investments even though the outbreak — and several other issues with global implications — are affecting their businesses. Here’s a summary of the stocks McLennan and Brooker are most confident in, and why they believe they’ll thrive over the next decade in spite of those challenges.

(1) Exxon Mobil

“There’s been a lot of negative sentiment around energy for understandable reasons with respect to climate change and the like,” McLennan said. “Out of all that, though, has come the opportunity to make some longterm investments in some of the leading players in that industry.”

The duo added Exxon Mobil to their portfolio three years ago, and they’re still optimistic even though the stock has fallen about 25% in that time. They say Exxon, unlike most of its competitors, is vertically-integrated, meaning it will have an easier time shifting its business and making other types of fuels, chemicals, and other industrial products and materials if demand for oil falls sharply.

McLennan says he finds Exxon appealing for two other reasons.

“In a world that’s got excessive levels of debt, here’s a company that has a fortress balance sheet,” he said. “You have a dividend yield on Exxon which is just below 6%. That’s a dividend yield that exceeds the yield of the high yield bond market, of a group of companies that that’s far more vulnerable financially.”

(2) Jardine Matheson

Brooker says investors are being scared away from Jardine Matheson because of the political uncertainty and ongoing protests in Hong Kong, where the company is based, and that the coronavirus could harm the stock as well. But he says the company is well-managed, in good financial position, and worth far more than investors realize.

“There’s roughly a 35% discount cap between the holding company and its pieces,” he said. Those include hotel and property management businesses in Hong Kong and Asia as well as a large automotive business based in Indonesia.

“The businesses that they own, although they’re very diverse in their nature, are all leaders in what they do,” he added. “It’s, we think, in the right businesses, and in an interesting region that is suffering through what we think and hope are temporary troubles.”

(3) Fanuc

Fanuc, their biggest investment in Japan, has been a victim of trade tensions over the past few years and may also be vulnerable to the economic effects of the coronavirus. But McLennan says it has a dominant position in a high-growth market.

“Fanuc is the world’s leader in computerized numerical controllers for factory automation equipment,” he said. “This is essentially the software brains that sits behind robots and servomotors and automated cutting tools. And they have north of 50% market share globally.”

He also says its economic position is getting stronger, the stock’s valuation is low, and that Fanuc’s business is a highly efficient one.

“If you go to one of the manufacturing plants, you’ll see that there are far more robots making robots and robot components than there are humans,” he said.

(4) Unilever

Consumer products giant Unilever owns scores of personal care and food brands sold all across the world, and the weakness in emerging market currencies in recent years has affected its results. Partly for that reason, the First Eagle managers say investors don’t appreciate how powerful and steady its earnings are and how strong demand is.

“We think that that investors don’t quite have the full picture of the strength of the business through the reporting that Unilever provides,” Brooker said. “Unilever, we think, really has the scale, both in terms of its distribution as well as its product development and marketing that are going to allow it to retain that position.”

McLennan adds that that makes Unilever a great way to gain exposure to growing consumer spending in those regions without taking on much risk.

“[It’s] one of the world’s ultimate staple companies,” he said.

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