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You are here: Home / Investment News / What investors need for the long run

What investors need for the long run

September 26, 2022

David Keir:Dundas Global Investors partner

Dundas Global Investors partners, David Keir and Neil Sutherland, traveled half-way across the world this month to visit Australasian clients, racking up more than 20 hours of flight time.

But the Edinburgh-based fund managers are used to the long-haul.

On a brief tour of NZ earlier in September, Keir said Dundas likens its investment style to a marathon with a certain degree of loneliness associated with the effort.

“We pay no attention to what others are doing,” he said, focusing instead on finding profitable global companies built for the long term.

Over shorter timeframes, however, Dundas occasionally falls behind the pack, eschewing the sprint in favour of a slow-burn increase in portfolio pace fueled by consistent dividend growth.

For example, over the 12 months to the end of June this year, the Dundas Australian-domiciled global equity fund returned -10.55 after fees compared to the just over -8 per cent for the benchmark MSCI All Country World Index (ex Australia).

And 2022 to date has been a tough one for the group’s composite portfolio (which includes about US$1.6 billion of the total US$1.8 billion Dundas assets), which was down over 25 per cent in US dollar terms against the index result of -20.2 per cent.

The composite portfolio has been ahead in most calendar years since the manager launched in 2012 while the Australian unit trust (offered by multi-affiliate firm, Apostle) used by NZ investors has outperformed the index net of fees over all longer periods dating back to inception in 2015.

However, as measured by underlying dividend-growth, the Dundas portfolio is well ahead of expectations, Sutherland said.

He said during the first half of this year the 65 global companies in the Dundas strategy grew dividends on average by 18 per cent compared to the long-term portfolio average annual experience of just 10 per cent (and 5 per cent for the respective MSCI index).

Dividend growth is central to the Dundas investment thesis, which rests on an observation that the factor accounts for about two-thirds of share returns over the long term.

The firm’s investment process, which involves a team of ‘generalists hunting as a pack’, naturally leans to profitable, lower-leveraged companies that also tend to commit more to research and development, Sutherland said.

Average companies in the global index might spend about 2 per cent of sales revenue on research and development, he said, compared to the 7-8 per cent of those in the Dundas portfolio.

“We’re always trying to find companies that can run at a faster pace, and we’re always checking on our existing ones, too,” he said.

Amid a renewed bout of volatility weighing on global markets, identifying those companies capable of sustaining traction in uphill conditions will be crucial, Keir said.

He said during difficult economic periods businesses that serve customer needs rather than wants will likely have a performance edge.

With 20 hours or so to kill on the flight over, Keir figured more than 80 per cent of the Dundas companies fall into the product ‘need’ basket – something, maybe, to give comfort over the long haul.

Dundas, which is represented in NZ by Heathcote Investment Partners, has about US$1.8 billion under management with roughly two-thirds sourced from Australasian investors.

 

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