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BLACK CREEK GLOBAL LEADERS’ GO-ANYWHERE MANDATE DELIVERS CATEGORY-BEATING PERFORMANCE
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THE FUND INSIDE
Veteran business journalist and investigative reporter Olev Edur takes you behind the performance numbers for close-up look at the people, processes, and portfolios that make investment funds tick.
 



By Olev Edur  | Thursday, December 01, 2016


It may seem a topsy-turvy investment world out there these days, but slow and steady can still win the race, as seen from the performance of the Black Creek Global Leaders Fund. While funds in the Global Equity category averaged a less-than-impressive 2.2% return for the 12 months through the end of October, and a 10-year average annual compounded return not much better, at 4.1%, the Black Creek fund returned 12.2% and 7.1% respectively for those same time frames. For some insight into Black Creek’s style, I spoke with Director of Global Equities, Heather Pierce.

The secret of their success? Just buy good companies at good prices wherever you find them, and then hold onto them. “We’re very much bottom-up investors, but we’re regionally and market-cap agnostic,” says Peirce, who co-manages the fund with Bill Kanko and Matias Galarce. Black Creek funds are available through CI Investments Inc.

“We have a bias towards industry leaders with growing market share, and we seek to own the rights to their future cash flows over the long term,” Peirce adds, noting that the fund’s turnover rate is typically in the high teens. “Of course, valuations may sometimes run ahead of themselves, or there may be acquisitions, but typically we’ll hold a company for four or five years, sometimes longer.”

The fund will invest in everything from microcaps to megacaps, but it’s still a concentrated portfolio, averaging 25 to 30 names (the current roster comprises 29). “Good micro-caps are harder to find, and they tend to be smaller holdings – typically 1 1/2% to 2% of fund assets,” says Peirce. “But we look for businesses that have representation in many parts of the world, regardless of size and where they’re headquartered. Some of our holdings are active in more than 100 countries.”

At present, 42% of the fund’s assets are invested in Europe, and while two of these holdings are based in the United Kingdom, Peirce isn’t concerned about the impact of Brexit – quite the opposite, in fact. “[Dublin, Ireland-based] Experian and [London-based] Intertek will actually benefit,” she says. “Less than two percent of their revenue is in pounds, so the currency’s weakness provides translational benefits. It’s a natural currency hedge.”

The fund’s biggest holding at 5% of assets – Paris-based Christian Dior SA (XPAR: CDI) – reflects the fund’s investment approach. “This is a conglomerate of very aspirational brands, and it operates globally,” says Peirce. “We became interested when it was available at a substantial discount because of concerns about Chinese gifting practices. But we felt this was a short-term concern that would dissipate over the long term. That was the original rationale, and it’s doing well and still has an attractive valuation relative to its peers.”

Geographically, meanwhile, U.S. weighting (22% of assets) is the lowest it’s been in 35 years, according to Peirce. “Generally, U.S. companies are expensive, and many are losing market share globally,” she says. “We don’t feel we have to be in every market. If we can’t find something better elsewhere, we won’t be there.

“There’s also an element of financial engineering in the U.S., for lack of a better term,” Peirce adds. “Companies are borrowing to buy back shares, and they aren’t retiring the shares, so they’re just offsetting their options.” Nevertheless, the fund does own a few “very much individual” U.S. companies, such as Inovalon Holdings Inc. (NASDAQ: INOV), a Bowie, MD-based health care technology company, and Carnival Corp. (NYSE: CCL), a global leader in the cruise business.

As for the global outlook generally, Peirce urges a degree of caution. “We don’t invest with a macro overlay, but we aren’t ignorant of macro trends. We’ve been advising our clients that we’re in a lower demand environment, and given valuation levels globally, they should expect lower returns than in the past.”

Still, given Black Creek’s entry has consistently been near the top of the performance rankings among 258 global equity funds, with double-digit annualized returns over the past five years (15.5%), slow and steady sounds pretty good.

Olev Edur is an experienced financial and business journalist and a frequent contributor to the Fund Library.

Notes and Disclaimers

© 2016 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

 
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