It may not be as well-known as the other two funds from the Evenlode Investment stable – Evenlode Income (BD0B7D5) and Evenlode Global Income (BF1QNC4) – but Evenlode Global Equity (BMFX289) has churned out some strong performance by focusing on stocks where growth is a ‘marathon not a sprint’.

Since its launch a little over three years ago Evenlode Global Equity has returned 38.3% to investors beating its benchmark the MSCI World index of 37% and its sector performance of 26.7%. Though it has found things harder going in 2023.

It currently has £278 million assets under management and is steered by Chris Elliott and James Knoedler. Ongoing charges are 0.85%.

WHAT MAKES THIS FUND DIFFERENT?

So, what makes this relatively new global equity fund different from others in the global sector?

One of the reasons for this fund’s strong performance is the investment managers’ choice of  high quality, cash generative companies at sensible valuations for its portfolio.

‘We also give our portfolio a nudge every week to assess its constituents, saying that you don’t have to make a change when you revisit your portfolio. There is a tension between having a low turnover with a growth fund and having a weekly dealing event’, says manager Knoedler.

‘When we meet, we don’t have to buy and sell anything, if it is not needed, we can stand back from the process. When we do trade it is incremental and progressive, you are trying to make the portfolio a little better in terms of your risk-adjusted compounding potential, so we don’t necessarily do massive, large trades in and out of stock,’ says Knoedler.

‘BUILT FOR MARATHONS NOT QUARTERLY SPRINTS’

Knoedler explains his fund differs from other global equity funds as ‘we look at the future profits of a company at company level’.

‘We have a bottom-up stock selection process and a valuations system which is very important to us. We put a higher value on companies which are set up to grow longer, not necessarily faster. These companies are built for marathons not quarterly sprints. If a company is expensive [as an investment manager] you put yourself in a really trick spot – you can pick the right stock – but at the wrong price and you get taken out when the market falls.

‘There are two things we are very diligent about and that is we are very attentive to the valuation and to the long-term piece. Marrying the two is extremely hard as there is a tension between the two and that’s where we spend the bulk of our effort. It is a constant balancing act.’

Knoedler adds: ‘What is important to us is how we manage valuations, how profitable the business is, a company’s pricing power, if it has a strong valuation system in place, we ask questions like are US tech giants like Alphabet (GOOG:NASDAQ) and Microsoft (MSFT:NASDAQ) overvalued? Will Amazon (AMZN:NASDAQ) be broken up?’

WHAT DOES THE FUND AVOID?

The fund’s sector allocations are striking – with weightings towards Financial Services (21.41%), Industrials (22.67%), Consumer Discretionary (27.25%) and Communication Services (7.2%) with relatively limited exposure to the technology sector.

This asset allocation served the fund well last year – which saw big tech stocks collectively lose nearly $4 trillion in market value, according to research by US data firm Morningstar – but not so much this year when stocks like Nvidia (NVDA:NASDAQ) have led the market.

Saying that the fund does include Microsoft in its top 10 holdings – holding 5% (as of 31 August 2023) and Google-owner Alphabet (GOOG:NASDAQ) – holding 5.52%. The fund’s largest holding is in global financial services giant Mastercard (MA:NYSE) (6.86%) and global information services company Wolters Kluwer (WKL:AMS) (5.62%).

Chris Elliott is keen to add that the fund is not ‘tech company adverse’ but doesn’t invest in companies which are speculative.

Elliott says: ‘We rely on companies which are profitable now, generate cash flow now and returns on investment. Sometimes that rules out companies that are very good businesses, but a lot has to go right for them to generate cash returns in the future.’

Knoedler adds: ‘Technology is a business where there is a lot of innovation and things can come out of nowhere and it is harder to put a premium on that.’

WHY ESG STILL MATTERS

Investing according to ESG (environmental, social and governance) factors may not be as fashionable with investors as it once was but it still forms an important part of Evenlode’s approach.

In 2017, there was a marked shift by Evenlode Investments to incorporate sustainable investment choices across its portfolios. So, for example in 2017, Evenlode made the decision not to hold any tobacco-related stocks.

Elliott says no sensible investor ‘would ignore ESG risks. ‘Time and time again they have proven to have real effects on the profitability of companies.’

GEOGRAPHIC EXPOSURE 

The fund has a relatively low exposure to the UK (17.7%) and Asia (2%) which perhaps is a good thing considering the current performance of the UK economy and the ‘flat’ China post-pandemic reopening at the start of 2023 which disappointed investors.

Most of the fund’s regional exposure is to North America (52.9%) and Europe (26.6%). The fund’s exposure to the US comes as little surprise due to its benchmark’s weighting to the US – as of 29 September 2023 – at 69.7%.

There is little or no exposure in the Middle East, Latin America, Africa, Emerging Asia markets. These regions come with greater risks attached and are more volatile.

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