Growth investing has taken on a new meaning, argues Manraj Sekhon, manager of the $227.3- millionMackenzie Universal International Stock and director of international equities at Henderson Global Investors Ltd. in London, England.
"Growth has evolved over the last 10 years," says Sekhon, 38. "In 1998, it meant technology, telecommunications and health care. But you won't get those answers any more." He cites a number of reasons for the change. "In some sectors, the business model is broken, and the sustainability of growth has not been proven. Growth has evolved into other parts of the economy, and also by geography."
From his viewpoint, companies whose earnings potential is greater than that of the market meet his definition of growth. He also seeks companies that can deliver a high level of growth in a sustainable fashion and to a greater degree than the market expects. "If a company meets those characteristics, it is a growth company. If it doesn't, I'll move on," he says.
Industries that were previously considered non-growth, such as capital goods, are more growth-oriented than once thought. The ABB Group, a global engineering firm listed on the SWX Swiss Exchange, is one example of Sekhon's thesis.
The company manufactures power systems, turbines and automation tools and devices. It has benefited from high demand for power generation systems in emerging markets, as well as infrastructure improvements in developed markets.
"People talk about China needing power stations, but the rest of the world also needs to upgrade their systems. That is helping the order books of companies like ABB," says Sekhon.
The oil service industry is another source of ideas. Sekhon and his five-person analytical team concluded that the value of the higher oil price would really accrue to oil service firms rather than the large integrated oil companies that had to devote large sums to capital expenditures.
One such oil-service holding is Keppel Corp. Ltd. The Singapore-based firm is the world's largest builder of rigs that are used in shallow water by the oil industry. "A lot of people would have difficulty associating it with expertise in this area. But given the valuation, its potential for growth, and management's track record, we thought it would be a great place to put our money," says Sekhon. Acquired in 2004, the stock has more than doubled in value.
A fourth-generation native of Singapore, Sekhon has been in the investment industry since he graduated in 1994 from the University of Warwick with a bachelor of science, specializing in management science. He was hired as a trainee fund manager at Mercury Asset Management (which was later acquired by Merrill Lynch).
After working on the UK equity team, he spent some time on the emerging markets team, and then ran UK and European equities on the global side. When Sekhon left in 2002 he was senior fund manager on the global equities team.
"I always had an interest in investing and collecting information about companies and understanding them," he says. "The great thing about global investing is that you can pick your hunting ground; it could be a Chinese automotive company, or a British resource company or an Indian bank. It's constant learning."
Sekhon spent a year at INVESCO Asset Management as deputy head of its global equity team. In 2003, he joined Henderson. In early 2004, he became co-manager of the Mackenzie fund, working alongside Stacey Navin, then director of Europe, Australasia and Far East funds. At the end of 2007, he became sole manager of the fund and head of the international equities team.
Running a 50-name fund, Sekhon limits positions to about 5%. Turnover has been brisk, at 90.7% for the 12 months ended June 30, 2007 and 95.2% for the previous year. Though the fund has a 4-star Morningstar Rating, its returns have turned negative over the past 12 months ended Feb. 29. However, its loss of 2.9% over that period was far lower than the median 16.4% loss among International Equity mutual funds. During Sekhon's tenture, the fund is a top-quartile performer over one, two and three years. Besides examining ideas put forward by his five-person team, Sekhon also gets input from Henderson's 50 investment professionals that cover international equities. With global markets in a bearish mood, he's been buying in countries such as Japan, which he has underweighted for some time. "Many industrial companies are best-in-class on a global basis," says Sekhon. "They have really strong businesses, with very well-managed operations." One example is Komatsu Ltd., which he had owned previously. The shares of the construction and mining equipment manufacturer have been pummelled in the past five months on fears of a global economic slowdown. "We think the shares are very attractive. They are trading at 13 times earnings and can go back up to 16 or 17 times. Earnings forecasts are too low," says Sekhon. "The company has been very solid in execution. That's why it deserves a premium multiple."
Running a 50-name fund, Sekhon limits positions to about 5%. Turnover has been brisk, at 90.7% for the 12 months ended June 30, 2007 and 95.2% for the previous year. Though the fund has a 4-star Morningstar Rating, its returns have turned negative over the past 12 months ended Feb. 29. However, its loss of 2.9% over that period was far lower than the median 16.4% loss among International Equity mutual funds. During Sekhon's tenture, the fund is a top-quartile performer over one, two and three years. Besides examining ideas put forward by his five-person team, Sekhon also gets input from Henderson's 50 investment professionals that cover international equities. With global markets in a bearish mood, he's been buying in countries such as Japan, which he has underweighted for some time. "Many industrial companies are best-in-class on a global basis," says Sekhon. "They have really strong businesses, with very well-managed operations." One example is Komatsu Ltd., which he had owned previously. The shares of the construction and mining equipment manufacturer have been pummelled in the past five months on fears of a global economic slowdown. "We think the shares are very attractive. They are trading at 13 times earnings and can go back up to 16 or 17 times. Earnings forecasts are too low," says Sekhon. "The company has been very solid in execution. That's why it deserves a premium multiple."
