Finding Global Leaders Outside of Tech

“We have applied a laser-like focus to companies that have been able to manage through the pandemic, and that can adjust their supply chains and change their way of working, whether that means employees work remotely or in some sort of hybrid situation,” says Peirce, who is part of a 3-person team sub advising the fund for CI Investments Inc. of Toronto. The team also includes Bill Kanko, Black Creek’s president, and Matias Galarce, also a director of global equities.

While Peirce views the COVID situation as a “tale of the vaccinated and unvaccinated” she does expect the virus to be “endemic” and to stick around for a while. “As the virus mutates, it will become more serious and the risks increase,” she says.

Peirce says some companies have managed “impressively” through the pandemic, and many are experiencing a recovery in revenue and cash flow as business returns. “We look for companies gaining market share in the recovery, that are benefitting from a broadening in the market,” she says.

CI Black Creek Global Leaders has performed admirably, showing top quartile returns during short and long-term periods. According to Morningstar, the fund gained 14.3% year-to-date as of July 30, 2021, beating both its benchmark index and Global Equity Category average.  Longer-term, the fund boasted a robust 10-year average annual compounded return of 14.2%, again beating the benchmark and category average.

Fund Avoids Big Tech

Peirce says the fund has steered clear of the dominant technology giants for some time, wary of their high valuations.

“We have found better opportunities in other areas, “ she says. “We seek companies that are leaders in their fields, and do what’s best for customers, clients and employees. It’s not enough to just be financially strong, they must also be socially and environmentally responsible and have strong governance.”

The portfolio is concentrated on best ideas, and currently stands at 32 stocks. The team analyzes past performance over a full cycle, and also looks ahead, examining such factors as discounted cash flow models over a 10-year time frame.  The ability of a company to grow organically is particularly important as mergers and acquisitions could come under increasing government scrutiny as some of the giants become more powerful, Peirce says.

“It is entirely due to our stock selection that we have been able to outperform the index,” says Peirce. “We are unconstrained by market capitalization, geography or sector focus.” The team has had particular success identifying underfollowed mid-cap businesses that lie below the radar and trade at attractive valuations.

It is also seeking companies that could survive any return of inflation by having the ability to manage cost increases. Peirce is wary of some consumer products companies that are experiencing supply chain shortages and higher costs for “inputs” such as packaging and energy. 

“There have been price increases, and that’s having a broad-based impact, whether it’s on makers of appliances or automobiles,” she says. “The expectation in the market is that the current annual inflation rate of more than 5% in the U.S. is transitory, but we’re not so sure. We like to be in companies with a unique product or service that enables them to price for inflation.”

Stocks in Focus

An example of an attractive holding that operates on a global scale and has strong growth prospects is GlaxoSmithKline PLC, a British-based producer of vaccines, pharmaceuticals and consumer healthcare products. 

In the consumer staples sector, an example of this kind of exceptional company is Hain Celestial Group Inc., an American health and wellness company targeting a higher income clientele and gaining share in “better for you” food and personal care products such as healthier sunscreens, organic baby food and herbal teas under the Celestial Seasonings brand.

Geographically, CI Black Creek Global Leaders is underweight in the U.S. and overweight in Europe and the U.K.  It has some exposure to Japan and to emerging markets, although frequently the companies doing business in emerging markets are headquartered elsewhere.

“Emerging markets are challenged today, and the vaccine rollouts have been slower, but that is a short-term issue,” Peirce says. “It will be a slower recovery in those regions, but they could be in a position to grow faster organically in the longer term.”

For example, the fund holds DKSH Holdings, a consulting firm that is based in Switzerland but has reach in emerging markets such as Thailand where it derives more than 30% of its revenue. The company offers market expansion services such as distribution logistics and regulatory assistance to producers of such products as consumer and health care goods, chemicals and pharmaceuticals. It is expanding in Indonesia, Vietnam, Singapore and Malaysia. Its roots as a pan-Asian trading company are helping it penetrate new markets, Peirce says.

Another key investment is Booz Allen Hamilton Holding Corp., an American management and information technology consulting firm that focuses on assisting clients in business, government and the military with digitalization and cyber protection.

The team sold the fund’s holding in Expedia Group Inc. earlier this year. It was purchased during the depths of the 2020 downturn and recovered significantly as investors looked forward to the return of travel.  However, the firm took on heavy debt and Peirce has concerns about the strength of recovery in business travel and international travel.