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Investment

A focus on value creation and growth pays off for BlueAlpha

By: BlueAlpha Investment Management

In the current economy, investment companies that are able to generate alpha are a rare breed. Specialist equity asset manager, BlueAlpha Investment Management is a member of this elite group boasting an enviable investment track record.

Established in 2004 by seasoned investors Uys Meyer and Richard Pitt, and later joined by Gary Quinn and Walter Jacobs, the company has proven expertise in managing both South African and global equities. BlueAlpha specialises in managing equity portfolios on behalf of both institutional and retail investors.

“Decades of experience navigating the markets and the ability to stay curious about the world around us serves our clients well,” says Richard Pitt, portfolio Manager at BlueAlpha Investment Management.

He explains that the company’s investment philosophy is centred around identifying companies that have a track record of long-term value creation and growth. “A company’s ability to generate good cash returns is key and is proven to provide superior investment returns in the long run. A factor that is often under-appreciated by the market, is the persistence of both value creation and destruction. In our experience, value-creating companies are great compounders and they play a foundational role in our portfolios.”

BlueAlpha’s most successful fund is the BlueAlpha BCI Global Equity Fund, which is primarily focused on investing in developed market equities. The fund has outperformed the benchmark over a three-year annualised period by 5.4% – an achievement, which saw it awarded a Raging Bull Award for the Best (SA-domiciled) Global Equity General Fund over a three-year period to December 2018, and most recently, to December 2019, at the 24th edition of the awards held in Cape Town yesterday.

The annual ceremony celebrates the top performers across a range of sectors and acknowledges investment managers in terms of top outright performers, best risk-adjusted performers and the best unit trust management companies.

In keeping with the company’s investment philosophy, the fund focuses on businesses that generate high returns on invested capital, which translates into real economic profit – as opposed to accounting profit, explains Pitt. “These companies typically generate strong cash flows which they are able to reinvest for growth at high rates of return.”

He says that long-term performance is more reliably sought by investing in the right type of companies and allowing them to generate the returns, as opposed to relying on a portfolio manager’s ability to time either the market or cyclical rotation within industries and sectors.

The fund’s rigorous and consistent commitment to this philosophy has paid off with excellent returns both in absolute and relative terms over most time periods since its inception. Its performance over one, three and five years has been driven in large part by the portfolio’s holdings in three sectors: technology, consumer discretionary and consumer services.

Over the past three years, Blackstone, Apple and Mastercard contributed significantly to returns relative to the MSCI World Index, highlighting, says Pitt, the importance of staying invested with great companies for extended periods of time.

“These three companies all benefit from scale effects, have high returns due to monopolistic-type positioning in their area of business and have a sound long-term runway for growth,” he points out.

The fund’s sector and stock allocation has remained relatively constant over the past three years, Pitt reveals, although its stock in Boeing was sold after the company’s apparent inability to deal with two fatal plane crashes.

He adds that these three sectors will continue to dominate the fund’s portfolio in 2020. “We have made few changes to the portfolio, with the exception of adding PayPal holdings to complement the holdings in Apple and Microsoft. This decision is based on our belief that fintech ecosystems provide excellent opportunities for investors.”

“Our main concern will be to keep looking for and investing in companies that generate real economic profits and have the opportunity to grow,” Pitt concludes.







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