The global stock market is notoriously difficult for active managers to beat over long periods of time – where different investment styles and factors often go in and out of favour.
Although growth investing has dominated over the past decade, only a few growth funds in the IA Global sector have managed to outperform for longer than a decade – the Rathbone Global Opportunities fund is one such fund.
Since he started managing the fund in 2003, manager James Thomson has returned more than 1,040% to investors, the second highest return of all the funds in the peer group over that time.
Performance since manager start vs sector and benchmark
Source: FE Analytics
Thomson attributed much this performance to the fact that fund management is “probably more art than science”.
Below he tells Trustnet how his ‘secret sauce’ works, his best and worst investments so far this year and one stock he is most excited about.
What is your process for picking stocks?
We look for innovative developed-world companies with simple business models that dominate their industries through a mixture of quality management, technological supremacy and scale.
When we find compelling stocks it then comes down to resilience, accelerating growth and a reasonable valuation to determine if they are worthwhile buys and how much risk they bring.
Crucially we subscribe to the maxim, ‘when in doubt, sell it out’: changes in strategy, market dynamics, deteriorating numbers, the spectre of regulation or extreme valuations (either way) drive us to exit completely.
Why should investors pick your fund?
Our fund is all about stock picking – about finding the very best growth companies in the world. To do this we can invest anywhere, although we tend to stick to developed markets that we know well, rather than emerging markets and Japan where we feel we don’t have an edge.
Our portfolio is concentrated in roughly 40 to 60 stocks, and it tends to look very different from our global equity benchmark in terms of country and industry exposure.
We believe investors appreciate this willingness to diverge from the benchmark and make meaningful decisions about the sorts of businesses that will perform best. We think this conviction is what drives long-term outperformance.
How risky is your fund?
We have tried to balance our holdings, so they are driven by different areas of demand and market shifts.
We’re doing our best to dampen some of the heightened volatility that has developed from the intrinsically chaotic global reopening, from trend-following algorithms and from worries about a bull run for stocks that is now more than a decade old.
The greatest risk that we monitor is structural changes that could render our companies’ products or services obsolete – here the risk is a permanent loss of capital.
There is also ‘style’ and ‘factor’ risk, which creates short but painful periods when our ‘growth’ style and stock-picking philosophy goes out of favour. This can create periods of significant underperformance against our peer group and is something that has been happening frequently during 2021 as markets try to find their post-pandemic normal.
What has been your best call over the past year? 
ASML was our best performer over the 12 months to 30 September, returning 95.8%. This is a Dutch company that makes top-of-the-line machines that print the smallest and most powerful computer chips.
These chips go in everything nowadays, and they are in short supply because of pandemic-driven production constraints mixed with increased demand for gadgets and remote-working equipment during lockdowns. That boosted the stock of ASML as companies invested in greater production.
And what has been the worst?
Our worst performer was grocery delivery expert Ocado, which fell 39%. It has bounced up, down and around during the pandemic as investors became overoptimistic about its short-term prospects and then catatonic about its lack of new supermarket partners.
We still own it because the growth potential is so vast, given that the penetration of online grocery shopping is still in the single digits. This lags other industries, such as electronics, beauty and clothes, which make between a tenth and a fifth of their sales online.
What is the most exciting stock in the portfolio?
Costco. It may not be a whizzy tech company or ground-breaking medical device business (of which we have more than a few), but it is one of the best-run and strongest retailers in the world.
As the world reopens, with all the confusion and complications that accompany such a synchronised global kickstart, I think robust and dependable businesses like Costco will do well.
Now, with shipping costs ballooning, it has leased entire boats and thousands of shipping containers to ensure its supply chain. There’s going to be a lot of anger and frustration this winter as businesses simply don’t have stock and can’t get anything in.
That will cause headaches for retailers that may last longer than you think. Customers may well hold a grudge and stick with the businesses that were able to deliver. We think Costco has a strong chance of being one of those reliable retailers.
Are there any sectors you won’t invest in?
Anything commoditised. Whether that’s raw materials themselves, like coal and copper purveyors, or big lumbering lenders. These companies tend to be price-takers, i.e. they don’t have an edge (other than the lowest price) that allows them to beat their competitors and grow.
Because of this, they tend to be very reliant on the global economic environment, something they have no control over. This goes for many other businesses, including airlines, run-of-the-mill retailers and automakers, so we avoid them too.
What do you do outside of fund management?
I enjoy playing golf, remembering the halcyon days when I grew up on a golf course in Bermuda. Now there are young children in my house, it makes it harder to find days at a time where I can skip off to the links. So, I’ve taken up tennis, playing in a weekly match against a close friend. He usually beats me.