Richard Troue: Thomson finds prospective growth in defensive sectors

The Analyst

Over the past decade, the nature of investing has changed. Previous wisdom entailed allocating a proportion of your assets to key regions, to create a well-diversified portfolio. In today's globalised world, a company's location can be irrelevant. Many successful businesses operate across the globe.

Efficient distribution networks, more advanced technology and the evolution of the internet have made it easier for companies to generate sales across the world, whether they are based in Bristol or Beijing.

Visa, the world's largest payment processor, is a good example. It handles more than 20,000 transactions a second and is benefiting from an increasing tendency to pay by card and shop online. So far this trend has mainly been restricted to developed markets. As wealth rises in emerging markets and demand for credit and debit cards grows, a valuable source of future growth is built in.

This is the type of company sought by James Thomson, manager of the Rathbone Global Opportunities Fund. He simply aims to invest in great businesses, wherever they are based across the developed world. He likes companies capitalising on strong, long-term trends and Visa is among his favourites. It is currently the largest holding in the portfolio.

After a period of underperformance in 2008 Mr Thomson reviewed his investment process. He now places greater emphasis on "weatherproofing" the portfolio. This is no longer just a bull market fund that will subsequently underperform in a bear market. He believes companies with certain characteristics can have the resilience to keep growing through thick and thin. He prefers companies with a business model that is easy to understand and is scalable, or capable of generating repeat revenues.

He also looks for companies in a strong position, operating in areas where it is difficult for competitors to spring up and take market share. This gives them an element of pricing power – the ability to raise prices without seeing a subsequent drop in demand. In this regard he also likes Rightmove. Like Visa it is capitalising on changing consumer trends. The internet now generates more than 70 per cent of all leads for property purchases in the UK, and Rightmove has an 82 per cent share of this lucrative market.

Management teams with entrepreneurial flair and the prudence to reinvest profits wisely to expand the business are also important, says Mr Thomson. However, in my view one of the key attractions of his fund is his unique perspective on growth. Running a growth fund means he would not traditionally invest in classic, value-type stocks. Indeed, he hasn't gone out of his way to do so now, but in an excellent demonstration of lateral thinking he believes he has found a route into traditionally defensive sectors while retaining the prospect of significant growth.

Virbac, a French pet pharmaceutical company, is an example. It does not have the same clinical risks as human pharmaceutical companies and many of its drugs are simply modified versions of those already approved for human use. So it has similar characteristics to those of a normal pharmaceutical, but with less downside in terms of patent expiries and R&D costs.

He also holds Intertek, which tests, inspects and certifies a huge range of products from toys, smartphones and medical devices to batteries, military armour and car parts. Mr Thomson believes it will benefit from increasing levels of bureaucracy and ever-more stringent safety standards.

New positions are introduced at around a 2 per cent weight as he wants them to make a meaningful contribution to performance. There will generally be between 40 and 60 holdings, which means that the portfolio is reasonably concentrated, although he tries to ensure that it remains diversified geographically and across industry sectors.

A focus on quality companies with strong growth potential has served investors well. Since its launch in May 2001, the fund has grown by 118 per cent compared with 46 per cent for peers in the IMA Global sector.

A further advantage is the fund's size. At less than £230m it remains nimble and flexible enough to take advantage of opportunities among companies of all sizes. Mr Thomson will often see opportunities for growth which don't fall onto the radar of other investors and I rate his stock-picking ability highly. This fund could be an excellent core-growth holding for this year's Isa or Sipp.

Richard Troue is an investment analyst at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit hl.co.uk

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