The stockpicking view of Mark Tinker, global portfolio manager of Axa Framlington, has been greatly influenced by his career on the sell side of the investment management business. He spoke to Amanda White about a thematic approach to global equities and why, uniquely, two new themes have emerged in the wake of the financial crisis and why China fits into all 12 of them.
Mark Tinker has spent only three years of his career in the investment industry working in funds management. The remaining 22 years were spent in research at investment banks, and this experience has fashioned his stock picking process.
As lead fund manager of global equities at Axa Framlington in London, he manages the thematic equities product, which, as the name suggests, is driven by a top-down view of the world in accordance with various themes.
Currently there are 12 themes and, as a result of the past two years, two new themes have emerged which he has coined as: pay as you go consumption, and the pricing power of capital.
“I wouldn’t normally come up with new themes, the world doesn’t move that fast, but last year it did,” he says.
The pricing power of capital, which with a September weighting of 15 per cent is second in the portfolio only to the Asian consumer theme, is directed by the general thought that capital is cheap but scarce.
He points to the emergence of a global nifty 50, which will be a very powerful single theme over the next few years, and companies such as Walmart, which he bought because its pricing power has changed fit into this category.
Of the top 10 holdings in the portfolio, five of the stocks are directed by this theme – Johnson & Johnson, Credit Suisse Group, Procter & Gamble, Coca-Cola and Google.
Axa Framlington’s approach is to start from the top with the full universe of 7000 companies, and guided by its pre-determined but evolving themes, such as the emerging Asian consumer, infrastructure, global trade and green technology, it filters that down to about 1500.
Tinker says this is filtered further according to a “does it work” philosophy, with a more qualitative assessment as the final determinant.
To do this, Tinker is happy to use sell side expertise, in an “expert witness kind of way”, with the valuation process undertaken in house.
“My approach to global is: I am global to maximise the opportunity set, but I don’t want to find the best stock in a bad market, I want unconstrained global,” he says.
But while themes dominate the top-down assessment, he says it is also essential to go back to basics.
“The real long-term return is generated by the company you’ve allocated to, so you have to be bottom up,” he says. “This also means the amount allocated to each of our themes is a bottom up process, this is key because they are not baskets but a guiding premise.”
For example Tinker says the themes of global trade, energy, and emerging growth transferred to a higher weighting to emerging markets. But then another series of what Tinker calls “policy errors” with the Bank of England and Bank of China increasing interest rates, global growth was stunted, so the emerging markets exposure was decreased.
Tinker believes there is an element of China in all of the themes.
For example, the changing consumer habits theme.
“The Chinese government is building infrastructure and service infrastructure, like hospitals. A hospital visit will cost you a year’s salary at the moment, but with the government infrastructure improvements that capital can be freed for spending,” he says. “This translates to individual companies. For example, Procter and Gamble are saying to me, they are decreasing their price points in the West and increasing their price in the East.”
Tinker acknowledges at times he may have similar companies in the portfolio to other global funds managers, but they are there for different reasons.