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UCITS Global Equity Portfolio (Class A)
Q3 2019
TM Cerno Global Leaders
TM Cerno Global Leaders invests in global companies with sustainable competitive advantages delivering above average returns.
Its target is to deliver performance in excess of MSCI World Total Return (GBP) on a 3 year rolling basis. The fund will hold 25-
30 securities, equally weighted, selected according to a distinct investment thesis that accents industry structure, the sustenance of
return on capital and secular growth. The fund does not invest in banks, commodity, fossil fuel or tobacco companies. The portfolio
is fully invested at all times.
NAV/Share (Class A Acc) £11.50
Fund Size (£mn) 69.4
Strategy Assets (£mn) 103.2*
Currency Share Class GBP (Base)
Investment Management Charge 0.65%
Ongoing Charges Figure 0.90%**
Dealing Frequency Daily
Legal Structure OEIC (UCITS)
Number of Holdings 27
Active Share 99.2%
Lead Manager James Spence
Inception Date Fund 2017
Inception Date Strategy 2014
Investment Objectives
Fund Data
*Includes all assets within the fund as well as other Cerno managed assets invested directly in to this strategy
**OCF includes the Investment Management Charge
In this quarterly update, we feature the rationale for two sales
and three additions to the portfolio made in the quarter. Before
we get to these, we spend some time reflecting on conditions
faced by companies given the oft cited and prevailing state of
uncertainty within the world.
A ranking from Google which places the term “uncertainty”
alongside a variety of possible sources, yields the following
results. (See table overleaf)
If search incidences are any guide, then we might expect issues
of climate - paired with uncertainty - to be close to the top,
as indeed it is. On this measure, anxiety surrounding climate
bears close relation to that surrounding China and ranks close
to that swirling around the social-media company Facebook.
Brexit, at less than a quarter of these by impressions, is
relegated to a local affair with half the incidences of a wider
issues such as gender. Brexit, though, ranks higher than
Trump. Expect Presidential displeasure.
Facebook, which is not owned by the fund and indeed is
not a qualifying security for the strategy, is an unusual
entity. Whilst some people shun this social media platform
and are uncertain of its aims and wider effects on humans,
Uncertainty is nothing new
many others are both users of some of all of it platforms and also harbour the same uncertainties. These mainly pertain to the issues
of behaviour modification, the right to or at least preference for privacy and the commercialisation of viewing preferences, opinions
and our trails in the ether.
We investigated the analyst call transcripts of Facebook and a number of owned companies to study incidences of when uncertainty
is cited and to understand the context when it is. Dave Wehner, the Chief Financial Officer of Facebook cited uncertainties in the
companies 2Q earnings call held with analysts on 24th July of this tear, to wit:
“We executed well in Q2 with a number of optimizations and product wins, particularly with the Facebook app that fell in our
favor and help combat the overall trend of deceleration. However, we continue to expect that our constant currency revenue growth
rates will decelerate sequentially going forward. We also expect more pronounced deceleration in the fourth quarter and into 2020
partially driven by ad targeting related headwinds and uncertainties.”
In his comments, Mr Wehner is connecting the general trend for moderation in Facebook’s growth rates due to base effects with the
regulatory overhang as more governments and agencies look to investigate how users data is sold for ad targeting purposes. Other
than this sole instance, Facebook’s call is remarkably free of uncertainty: testament perhaps to the shiny, happy people that run the
company.
Over at Microsoft (which is an owned company) CFO Amy Hood, spoke of uncertainties surrounding tariffs:
“OEM Pro revenue grew 18%, ahead of the commercial PC market, driven by healthy Windows 10 demand, strong momentum in
advance of Windows 7 end of support, and roughly 4 points of benefit from increased inventory levels due to uncertainty around
tariffs. Therefore, inventory levels ended the quarter above the normal range.”
The highest incidence of usage of the term uncertainty was recorded in the analyst call held on 30th July by the executive team at
Waters. This company is a leader in measuring the contents of pharmaceutical compounds and foodstuffs. Chairman and CEO Chris
O’Connell gets things going with the hammer blow:
“The general industrial slowdown is certainly something that’s affected our business and that’s been primarily a European question
as our industrial business in the US was actually quite positive in the quarter and has been positive. The European environment is
Uncertainty is nothing new
“Uncertainty” + “?” #Mn Google search citations
Trade Wars 0.36
Interest Rates 22.3
Brexit 30.4
Trump 53.8
Gender 61.9
Climate 121.0
Facebook 136.0
China 142.0
Source: Google
really characterized by a lot of uncertainty, particularly as you point out around Brexit. There is no question that the northern part
of Europe has in particular been impacted by that. We’ve seen more pressure in the Northern part of Europe than we have in the
Southern part of Europe, but obviously that’s going to work its way towards a resolution point one way or another here by the end
of the year.”
Well, maybe Chris, maybe.
From that point, he is invited by analysts to provide guidance on China demand. China had recently established a novel set of
tendering protocols instituted by the central government whereby pharma companies are invited to tender on prices for 31 generic
compounds for the provision of 11 major cities in China, accounting for over 30% of national demand.
“So there is some belief in the marketplace that there is still room for a number of players. And as this program expands to over the
next 2 to 3 years, that there will be room to play for a variety of different types of companies and because of that, we did see some
back to businesses -- back to business attitude in the part of our customers. Because there is some continued uncertainty there, we
haven’t assumed a spring back to what I call a normal pharma purchasing environment this year, but hopefully, we’ll gain continued
visibility of that over the course of the year. So I think our outlook in China of kind of that balanced and somewhat cautious view is
appropriate and continuing to look at the type of trend that we saw in the second quarter”.
Fair enough. China’s ingenious policy is delivering lower prices for high demand, repeat use drugs. This should be seen as a possible
consolidating factor and hence the uncertainty from a key supplier. Waters benefits from a diverse manufacturer base, as it can be a
supplier to them all. Waters would less welcome a consolidating market place.
We can see how references to uncertainty are coincident with trends in markets that are unfavourable.
The CEO of PPG, a leading manufacturer of paints and coatings, referenced the Mexican economy followed by Brexit and then
completed the trifecta with a reference to global industrial production trends in the company’s last call:
“Sale volumes were tepid as consumer demand reflected increased uncertainty around Mexico’s economy and economic policies…..
Brexit uncertainty is not yet impacting our business trends. However, we expect to closely monitor the situation and prepare
contingency plan to best address the potential impact to overall demand and relating inventory needs. With ongoing uncertainty
over global industrial production, we have intensified our cost management of costs, including working with our supplier base to
ensure that our input costs are reflective of current industry demand conditions.”
Fellow industrial Rockwell which specialises in systems and software that connect manufacturing businesses on multiple cites
displayed a Freudian level of anxiety, citing:
“uncertainty with respect to global trade is impacting some customers investment decisions, particularly those related to the timing
of capital investments…..and so there is some movement of where products are being built, who are the sub suppliers of those
various products as people are trying to get to where we are and that is to neutralize the impact of those tariffs on their cost inputs.
And so that’s a lot of work. These things -- the decisions aren’t made overnight and so being able to react to the current environment,
but in a way that won’t have to be undone in some short-term time horizon. That’s the kind of uncertainty that we’re talking about
that we’ve dealt with and that our customers are dealing with.”
Brexit is mentioned elsewhere, by VISA:
“The UK economy remains weak due to Brexit uncertainty, ex-UK global payments volume trends remain robust.”
The term “ex-UK global” has unpleasant existentialist undertones to it.
Uncertainty is nothing new
Finally, six sampled companies did not reference uncertainty in their recent update calls. They were Nidec, Nestle, Fresenius,
Oracle, Zimmer Biomet and ANSYS.
Should we read anything into this? Perhaps not much. This limited study of recently hosted conference calls by companies displays
a high incidence of uncertainty around certain key nodes: US trade tariffs, BREXIT and weak trends in industrial production. It is of
interest that climate concerns or concerns about the costs of remedial action have yet to crest. The only time climate is mentioned is
in a metaphorical sense (“the investment climate”).
Managers of established commercial concerns are likely only to cite uncertainties that can be readily comprehended. This is not an
exercise in the expansion of consciousness. Esoteric or unusual concerns risk seeming off-beam and odd. Companies are, after all,
parts of enmeshed eco-systems and therefore liable to echo the concerns of customers and suppliers.
- James Spence
Uncertainty is nothing new
We added three companies to the portfolio in the quarter and sold two. Whilst this was an unusual and atypical high level of activity
in the quarter, several lines of enquiry were concluded within a few months of one another and changes consequentially took place.
3M and Reckitt Benckiser have been sold within the portfolio whilst Nidec, Microsoft and Philips have all been added. We profile
the rationale for each below.
3M
After many decades of impressive growth, we believe 3M now faces considerable pressure from lower quality substitution, powered
by powerful retail and procurement platforms of which Amazon is the most notable player. Secondly, 3M now has proportionately
less growth opportunity than any time in its history – by geography and by market segment. Following a period of review, 3M has
been sold from the Global Leaders portfolio.
3M is a somewhat unique company. Its corporate DNA is based on product invention and development across very wide product
segments, appealing to both household and industry buyers. It has been at the vanguard of US companies pushing into a globalised
world. It runs thousands of product lines across four divisions without seeming inchoate: safety & industrial (34% of group sales),
transportations & electronics (29%), health care (21%) and consumer (16%). Group sales total US$32bn, meaning that an additional
US$1bn is needed to achieve 3% growth. This is a hard task in the world of materials where products can be readily substituted, in
many cases.
To some extent 3M is the victim of its own successes: its ranges have been extended so successfully that each new augment provides
progressively less revenue potential, on a proportionate basis. It has branched overseas: developing mid markets beneath its upper
markets. With this push largely achieved its products are at risk from the blurring of mid and lower tier products with the lower
tier given more prominence via growing price transparency afforded by retail platforms. Buyers find themselves less motivated by
brand as they are encouraged to trade off quality and brand perceptions against price.
The visible merits of 3M lie in its commitment to R&D, although it would be dangerous to assume that past successes can simply be
extrapolated forward, it’s impressive margins (21% operating margins) and ROIC but these speak more of past successes than future
opportunities. Finally, 3M has paid an increased dividend in every one of the past 61 years and a dividend for the past 100 years.
Management attention has been drawn into managing in a low growth environment as the company has begun to lose its GDP-
plus reliability and growth rates descend back to underlying global growth rates, or even below. Inevitably, rounds of restructuring
become the new norm.
Reckitt Benckiser
The consumer packaged goods industry is going through a disruptive transition where niche brands and private labels are gaining
market shares over established players. Millennials, in particular, bear less allegiance to brands in less glamorous household
categories, and private labels have seen increased penetration, even among the high-income demographic. Digital marketing
initiatives has brought down the cost of expansion of new brands, whilst online distributors’ infinite shelves and AI driven reviewing
systems often display relatively unknown brands in an analogous fashion to branded goods. Where we see resilience is in the upper
reaches including luxury segments where prestige branding still holds sway and are positively accented by social media influences
(‘the Instagram effect’).
Even in Emerging Markets, the growth driver over recent decades for many multinationals, we are seeing more competitive pressure
Portfolio Changes
as local players gains an edge with comparable quality goods and in many cases more innovative products and marketing strategies
tailored to their home market. Some established players have navigated the trends better, Nestle for example, by embedding
themselves into high growth and high margin segments such as coffee and pet nutrition, with an acute awareness of local preferences.
Reckitt Benckiser faces considerable challenges in this environment. The owner of well-known brands such as Dettol, Durex and
Nurofen have experienced a series of unfortunate events over the last few years, compounding the negative industry evolution. The
company is suffering from low growth syndrome. Having been a stellar performer historically with best-in-class margins, what
concerns us the most is the negative trend in the wider industry unanimous to global consumer groups, and Reckitt’s ability to
successfully navigate exogenous growth problems in their product categories.
Neither of Reckitt’s two business units – Health & Hygiene Home – are immune. Household products such as detergents and
disinfectants, is a relatively easy choice for downgrading to white label replicas unlike food & beverages, where consumers are
highly specific about their taste partialities and sentimental attachments.
In consumer health, Reckitt bets on higher growth potential as it builds up its portfolio with infant nutrition, supplements and OTC
drugs. However, competitive pressures have also crept into OTC as generics and private labels such as the launch of Amazon’s own
label Perrigo brand poses challenges to Reckitt’s own brands Nurofen and Mucinex.
Even if the company can return to market growth, we now envisage a cap of 3-4% growth at the top-line. Margin pressures are also
likely to persist as the company needs to accelerate investments significantly both in product innovation and marketing to regain
market share and restore trust.
Nidec
Nidec Corporation (listed in Japan) is a new addition. Nidec is the top global supplier of brushless Direct Current (DC) motors,
accounting for around a half of all production. Domiciled in Japan the group is truly global with production sites across Europe,
Asia and North America.
Motors are simply any power unit which generates motion. An electric motor converts electric power into motive energy. They work
via a current creating an electromagnet, which is then used to power a core spindle around. Brushless DC motors combine superior
attributes of small size, large power output, ease of connection and positioning control.
This is not a new technology. Brushless DC motors became possible after the development of solid-state electronics in the 1960s, and
Nidec began producing them in 1975. However, unlike many products, the applications of advanced DC motors have proliferated
over time. This derives from the integral nature of the technology to the secular trends of electrification and mobility. Where these
themes collide you will tend to find DC motors.
Two additional undercurrents have favoured Nidec: the drive for efficiency and reduced scale. 50% of the world’s electricity is
consumed by motors. The economic and regulatory necessity of increasing the output ratio from this level of consumption is a
powerful one. Likewise, the demand for ever declining scale appears relentless. Nidec’s ability to bring innovative products to
market which do more while taking up less space has been central to their success. It is our observation that these forces are powerful
and ongoing providing long term support for the company’s core IP: the production of small, efficient motors.
The breadth of the company’s offering stems from this wide applicability. Its revenue verticals are diverse, from IT equipment and
factory automation to EV traction motors and camera shutters. To some observers their product portfolio might appear to lack a
‘killer product’, a ‘game changer’. But this is its strength, in our view. Most products are not flashy, but they are enablers, and hard
Portfolio Changes
to substitute. The evolution of Nidec’s portfolio offers some insight into the importance of its management and corporate philosophy.
Led by CEO and founder Shigenobu Nagamori the group has created a dynamic philosophy focused on the continuous search for
adjacencies in products, technology, markets and customers. This enabled the company to diversify away from the original core
business of hard disk drive motors in 2006, well ahead of the end of the PC boom. The business now accounts for just 12% of
revenues, although Nidec holds a market share of 85%. The group’s focus since 2010 has been to reposition the portfolio towards
Automotive, Appliance, Commercial and Industrial sectors through some 34 acquisitions. AACI verticals now account for 55% of
sales. Despite this flurry of activity the group has maintained its first quartile return on capital profile through improving acquired
businesses and gaining synergies with the core.
Given the central role of Mr Nagamori in this strategy succession risk is a concern. Comfortingly the company has been proactive in
this regard, promoting Executive VP Hirojuki Yoshimoto to President in 2018 with Mr Nagamori focusing solely on his CEO role.
This ability to persistently locate opportunities in adjacent domains instils a robust ability to adapt and remain relevant. The group’s
position is further buttressed by a deep patent portfolio, switching costs and the multi-disciplinary technological expertise needed
to produce advanced motors.
Since 1997 Nidec has delivered compounded sales growth of 14% per annum with operating profits expanding at 15% over the same
period.
Microsoft
“Whatever happened to Microsoft?” the Guardian[1] mused in August 2012. In some respects, this might have appeared an odd
question. The company dominated the PC market via Office and Windows, while it also led in the corporate server market. At a
market cap of US$220bn the company was still one of the biggest in the world.
However, while its core business was nigh-on impregnable, strategic missteps had left it on the side lines of key consumer trends,
most notably the smartphone and social media. In 2012, the iPhone brought in more revenue than all of Microsoft’s products. While
the group held a small stake in Facebook its participation in the secular megatrend of interconnectedness was minimal. The most
damaging factor was the speed of change. Apple had created the smartphone market from nowhere only 5 years earlier; Microsoft’s
Steve Ballmer infamously declared at the time it had “no chance”. Facebook was about to welcome its billionth user 6 years
after launch. Microsoft’s reaction function was to chase the pack, in all directions. The group embarked a series of misadventures
including, acquiring Nokia for €7bn.
This flailing added to the perception that Microsoft was a yesterday company. As the Guardian pointedly put it, “Microsoft was once
an incredibly rich, smart, agile, innovative, competitive and aggressive company. Today only the cash reserves and the aggression,
personified by its current CEO Steve Ballmer, remain”
Microsoft, in its current state, is at once familiar and unrecognisable. The business has leveraged the dense network power of
its core dominance in home and office computing to push hard into the provision of commercial cloud services. Azure, its cloud
infrastructure business, now accounts for one third of revenues, and by market share is second only to Amazon Web Services. The
complexity of migrating commercial workloads in full to the cloud has created enhanced demand for a hybrid environment of public
cloud and physical server. This has brought the legacy Windows server business into play. Microsoft is the only leading cloud
provider capable of providing hybrid environments, which are likely to become the dominant cloud paradigm. In a 2018 a survey of
corporate CIOs by JPM Microsoft was far and away the most ‘critical’ cloud platform, polling 10 points ahead of Amazon.
Portfolio Changes
The reversal in Microsoft’s fortunes can be traced back to the appointment of Satya Nadella as CEO in 2014, following the retirement
of Steve Ballmer. Mr Nadella joined Microsoft in 1992 and worked his way up to a variety of business and leadership roles across
multiple product lines. The business he inherited had many of the tools required in its locker. The problem was the locker also held
a clutter of other expensive, less useful tools. What Mr Nadella brought was a singular vision focused around the cloud, a business
which he had helped build in his previous role. He also led a rapid process of portfolio management, selling Nokia after taking a full
write down and acquiring strategic businesses in LinkedIn and GitHub.
The second critical shift has been to move the company culture towards a more collaborative, open stance. Microsoft was historically
an active opponent of open source, seen by most independent developers as Enemy #1. Mr Nadella has emphasised user experience
over short term market share partnering with a number of rivals to integrate Microsoft products onto their platforms. This flies
directly in the face of the jealous protectionism of the past, but creates a more flexible and faster growing business at the other end.
We have been assessing Microsoft as a potential inclusion in Global Leaders for a number of years. The businesses we seek to
own need to display convincing proof of concept in their core business. The early phase of this rejuvenation of the business was
transitional and it is our view that the runway for growth is a long one. The disruption potential for commercial cloud is vast. Only
14% of the market has been penetrated with some US$630bn to play for, according to GS. Microsoft is uniquely positioned to
benefit given its hybrid offering. At the user interface its Office product offers a compelling path of least resistance that allows the
company to replicate and repel new entrants. Slack represents a case in point. The much-hyped work chat unicorn is now public with
a market cap of US$15bn, 10x revenues. But it makes no money, its most recent financials showed an operating loss of US$166mn.
Microsoft’s response was Teams, which effectively offers the same sharing function but is integrated for free into the interface for
the Microsoft 365 user. Eventually Slack will have to charge for its services tipping the balance further towards Microsoft. This
incumbency effect helps perpetuate a wide moat around the business, giving Microsoft time to respond to disruptive new challengers
as they emerge.
[1] https://www.theguardian.com/technology/2012/aug/19/microsoft-ruled-world-what-happened
Portfolio Changes
Azure Hybrid Environment. Source: Microsoft
Philips
In 2017, Royal Philips, the Dutch company known for its lightbulbs and electric shavers, was reclassified by the index provider
MSCI into the Healthcare sector from Industrials, having undertaken a multi-year corporate transition to shift its portfolio from
electronic goods to providing more personal and professional healthcare solutions.
Once the largest European consumer electronics conglomerate, Philips was famous for its industrial and fundamental research,
pioneering cutting-edge products from compact cassette recorders in the 1960s to integrated circuits and transistor technology in
the 2000s. Many companies today share their roots with Philips, including the leading semiconductor equipment makers ASML and
NXP; and Universal Studios, whose previous life as PolyGram (founded by Philips), was the largest global entertainment label in
the 1970s.
Despite being an innovation powerhouse, Philips made the classic conglomerate mistake of losing strategic focus owing to
overdiversification, bloating its empire with unconnected low margin businesses. At its peak in the 1980s, Philips operated 13
major divisions and over 120 businesses across electronics, appliances, medical systems, entertainment, lighting, components and
semiconductors, employing a massive workforce of 380,000 people. The indigestion was felt keenly when the company almost
went into bankruptcy in the early 1990s. Its television tubes and lighting business was at risk of commoditisation from Korean and
Japanese rivals, its chain of video stores were bleeding cash, and their foray into mobile phones was disastrously loss-making. On
top, Philips as a company was mired in bureaucracy.
Turning it around was no easy feat. It took three CEOs over 20 years to restructure the company into its present slimmed down
form. Mr. Boonstra’s arrival in 1996 set in motion a series of divestitures to weed out non-core activities, selling over 40 businesses,
including Grundig televisions and music label PolyGram, shrinking the number of divisions down to five. His successor Mr.
Kleisterlee continued this trajectory, spinning out its crown jewel semiconductor division, which, at one point was the single biggest
contributor to group earnings. He also proposed belt-tightening initiatives to reduce overheads via outsourcing and improving
efficiency by encouraging cross divisional collaborations.
Current CEO Mr. Frans van Houten, who joined in 2011, has gained a reputation for driving hard decisions. He established the
long-term strategic direction of Philips to focus on healthcare technology, shedding the remaining television and entertainment
businesses, and separately listing its lighting business, in which Philips still owns a residual 15% stake. This represents the last
vestige of the lightbulbs business that traces back to the origin of Philips in 1891, with the aim to sell down the full position within
the next two years (already sold down from 30%). Further, to increase profitability in line with competitors, he has pledged a target
to increase group margins by 100 basis points per year with the proposed closure of 20 factories worldwide and to optimise the
remaining 30 for higher productivity
Today, Philips is a much more streamlined company with three outstanding divisions: Diagnostics & Treatment, Connected Care
& Health Informatics, and Personal Health. Healthcare now represents over 60% of total group revenues, with offerings spanning
large medical devices including MRI scanners, X-ray and ultrasound machines, where Philips competes primarily with Siemens
Healthineers and GE Healthcare with mid-teens market share. It is also a leader in surgical tools for image-guided therapy (>40%
share) such as cathlabs and smart catheters, and sleep & respiratory care devices to treat people suffering from difficulty breathing
(high margin duopoly with 45% global market share). The rest is represented by the Personal Health segment, selling consumer
products and small domestic appliances, such as electric shavers and powered toothbrushes (under the Sonicare brand), where
Philips is a global leader with 45% and 30% market share, respectively.
The company is also striving to become a ‘solutions’ provider with a more entrenched position in chronic care, an area of increasing
Portfolio Changes
importance as the global population faces an ageing epidemic.
With 60% of R&D personnel working on data analytics, Philips is stitching together service and software with hardware sales to
provide a more comprehensive offering to both patients and surgeons. By enabling connectivity and data analytics, it facilitates real-
time patient monitoring and superior decision-support to the surgeons, helping to improve diagnostic accuracy and drive down the
cost of care by keeping patients out of hospitals. This move aims to drive greater recurring revenues, which Philips expects could
eventually become 35% of group sales.
Philips is the fifth healthcare addition to the Global Leaders portfolio. Armed with a more appealing corporate profile and clearer
future vision, the company is on track to deliver 4-6% growth and margin expansion beyond 2020. It has a proven track record of
innovation, and is able to leverage its 65,000 strong patent portfolio, bridging insights from its unique exposures to both consumer
and professional healthcare markets. Its competitive position in the diagnostic & imaging market is characterised by a large installed
base and high switching costs, and in the consumer segment it enjoys strong branding, where it plays in the higher-end markets with
less competitive pressures and higher recurrent revenues (replacement blades and brush heads). While there is still much work to
be done as the reshuffle close in on its final phase, we believe Philips will be able to execute their digital strategy and morph into a
tech-enabled healthcare company that can stay embedded and relevant for the long-term.
Portfolio Changes
Philips Azurion: Next Generation Image-guided Platform. Source: Philips
Samsung Electronics Dominant in semiconductor memory chips and leader in smartphones >6 years
Nestle Diversified global food & beverage company >6 years
Visa Largest global electronic payments network >6 years
Zimmer Biomet Leading orthopaedic care specialist >5 years
Linde Largest industrial gas provider in the World >5 years
Renishaw Engineering specialist focused on equipment for precision measurement >5 years
Johnson & Johnson Global healthcare company spanning pharma, medical devices, consumer >5 years
Fedex Leading provider of Express Delivery services in the US >5 years
PPG Coatings company leading in the industrial/specialty business >5 years
Shimano Dominant supplier of cycling componentry >4 years
Givaudan Leading player in the Flavours and Fragrance industry >4 years
Novozymes Produces enzymes which application in a wide variety of daily products >4 years
Coloplast Global healthcare provider focused on ostm and conrinence care >4 years
LVMH The largest luxury goods conglomerate and most diversified >2 years
Rockwell Automation Largest pure play in industrial automation and control processes >2 years
EssilorLuxottica Vertically integrated producer of luxury, fashion and sports eyewear >2 years
Oracle The largest database and enterprise software company in the world >2 years
Ansys Leading developer of digital simulation software for product development >2 years
Fresenius Medical The foremost player in dialysis care active along the entire value chain >2 years
Waters World leader in speicalty measurements focused on the life sciences sector >2 years
Heineken Brewer with a strategic bias to premium beer, interests in low alcohol/craft >2 years
Atlas Copco Dominant producer in air compression and vacuum techniques >1 year
TSMC World’s largest pure-play semiconductor foundry <1 year
ASML Leading photolithography tools manufacturer for the semiconductor industry <1 year
Nidec Global top supplier of brushless DC motors for a diverse set of applications <1 year
Microsoft Dominant player in computing operating system and business software platform <1 year
Philips Healthcare technology company serving professional and consumer markets <1 year
*Holding periods relate to the entireity of the strategy within Cerno Managed Assets
Holding Period* Company Name
Holding History
Description
Sales by Geography and Valuations
Global Leader companies are, by definition,
global in their sales. Their domiciles are not
an investment consideration and most of
the companies have outgrown their home
market base many decades ago.
The perceived reliability of the earnings of
constituent companies and the fact that they
have commanding market shares in their
industries means that they will trade at a
premium to wide equity market aggregates.
The question is how much? The portfolio
has an aggregate Return on Equity of 21.8%
versus 12.9% for the World Equity Index.
We aim to rationalise margins, earnings
consistency and economic value against the
price paid. The fund’s approach to vaulation
could be described as growth at a reasonable
price (GARP).Asia/Africa
26%
Europe23%
Latin America5%
Rest of World6%
North America40%
Price/Earnings (1Y Forward, x) 20.5 16.1 14.9
Return on Equity (%) 21.8 16.0 12.9
Return on/Cost of Capital (%) 1.4 N/A N/A
Gross Margin (%) 51.8 33.8 31.4
Operating Margin (%) 21.0 13.2 11.8
Net Debt/Equity (%) 20.6 78.1** 52.5**
Dividend Yield (%) 2.0 2.1 2.7
* This data refers to the underlying holdings**ex financials
Characteristics Global Leaders* S&P 500 MSCI World
Investment Objective
Sector Exclusions
Savings Structures
Key Fund Documents
Counterparties
Contact
Returns in excess of MSCI World Equity Index (TR) on a three-year rolling basis
Banks, Fossil Fuels, Commodities, Tobacco, Armaments
Suitable for SIPPs and ISAs
https://cernocapital.com/tm-cerno-global-leaders
Authorised Corporate Director: Thesis Unit Trust ManagementTrustee: NatWest TrusteesCustodian: Northern TrustAuditor: Grant Thornton UK LLP
Tom Milnes0207 036 [email protected]
Disclaimer for TM Cerno Global Leaders: TM CERNO GLOBAL LEADERS (the “Fund”), which is a sub fund of TM Cerno Investment Funds, is organ-ised under the laws of the United Kingdom and qualifying as an undertaking for collective investment in transferable securities (“UCITS”) under Directive 85/611/EEC (as amended) and is regulated by the Financial Conduct Authority. This document is issued by CERNO CAPITAL PARTNERS LLP and is for private circulation only. CERNO CAPITAL is authorised and regulated by the Financial Conduct Authority in the United Kingdom. The information con-tained in this document is strictly confidential and does not constitute an offer to sell or the solicitation of any offer to buy any securities and or derivatives and may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of CERNO CAPITAL PARTNERS LLP. The value of investments and any income generated may go down as well as up and is not guaranteed. You may not get back the amount originally invested. Past performance is not necessarily a guide to future performance. Changes in exchange rates may have an adverse effect on the value, price or income of investments. There are also additional risks associated with investments in emerging or developing markets. The information and opinions con-tained in this document are for background purposes only, and do not purport to be full or complete. Nor does this document constitute investment advice. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by CERNO CAPITAL PARTNERS LLP, its partners or employees and no liability is accepted by such persons for the accuracy or completeness of any such information or opinion. As such, no reliance may be placed for any purpose on the information and opinions contained in this document.
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Key Fund Information
ISIN:
GB00BF00QK62
GB00BF00QJ57
SEDOL:
BF00QK6
BF00QJ5
Bloomberg:
TMCGLAA LN
TMCGLAI LN
A Acc
A Inc
Fund Codes
