Quality is the key to resilient portfolios in market turbulence
Buy the dip may have become a new catch-cry for many investors but for global equity manager Walter Scott, brought to you by Macquarie Professional Series, enthusiasm should be tempered with a focus on good fundamentals – that is, quality businesses. It’s not a surprising view from the highly experienced investment firm given it has seen exuberant bull markets fall victim to bubbles and recessions in its nearly 40 years of management. That’s not to say the Scottish based fund manager won’t be buying in this market, but with caution and a focus on its long-term strategy.
“Some of these companies are fundamentally not going to be challenged by inflation or higher rates. If anything, they could flourish, so if we're getting a much better entry point then we'll try to be opportunistic and build positions over time,” says Paul Loudon, portfolio manager.
In fact, Walter Scott is so conscious of the need for consistent and well researched stock selection (that isn’t just driven by snap price decisions) that in order to buy a stock, 20 members of their investment team need to agree – whereas to sell only requires one member.
Walter Scott identifies companies for selection on the basis of strong balance sheets, high rates of internal wealth generation and the ability to grow earnings over the long term – they want companies that are established, can generate value right now and still be able to in 20 years’ time. This approach aims to create a portfolio that is more likely to be resilient over market cycles.
Despite the market noise, Walter Scott still sees opportunities in the technology space and is also positive on the healthcare sector, viewing many companies in these sectors as benefiting from secular tailwinds like ageing demographics or industrial automation. Applying a strict quality framework means they can filter out the media darlings to find those businesses with solid balance sheets and pipelines, positioned to manage the coming markets.
Find more information on the Macquarie Professional Series and the criteria Walter Scott uses to identify quality here.
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