Key questions about World Brands

LOIM’s World Brands strategy focuses on finding the ‘next big thing’. Where do you look for that in today’s market?

In this Q&A, Lead Portfolio Manager Juan Mendoza outlines the performance drivers behind the strategy he has managed for 15 years (including six at LOIM). The key is knowing which brands across sectors and regions are at the forefront of exponential growth opportunities.  

1. How would you summarise the World Brands investment philosophy?

We are looking for these five factors: pricing power, hard-to-replicate intangible assets, recurring revenues or sustainable revenues with good visibility, high switching costs for consumers, and a management with the right mindset regarding the transition to a sustainable economy.

Such brands have a strong competitive advantage over years or decades, which leads to consistent earnings power.

2. How does your active selection process contribute to performance?

Our investment approach is driven by a fundamental, bottom-up selection process. The team focuses globally on growth stocks with a strong brand or portfolio of brands, a leading technology or a unique digital platform.

High active management allows the team to adapt quickly to changing market conditions and maximise returns for our investors. Being a global investor allows us to find alpha across the regions, including emerging markets.

We cover over 400 brands globally and group them in three categories: global brands; fast-growing, upcoming brands; and digital brands. We find them mainly across six MSCI sectors: information technology, consumer discretionary, communication services, consumer staples, financials and healthcare. Investing in multiple sectors helps mitigate volatility.

3. Where are you finding alpha opportunities at the moment?

In particular, we are focused on brands that are positioned to benefit from several megatrends, including artificial intelligence, digitalisation, and the growing weight-management market. The combined market for cloud computing and AI is expanding rapidly. Companies at the forefront (e.g., Amazon, Meta, Nvidia¹) are leveraging advancements to bolster their growth trajectories.

We have been increasing exposure to emerging market brands, particularly in the Chinese and Korean internet and tech sectors. These markets have been oversold, offering improved risk/return profiles. We have reduced exposure to global consumer staples.

With decelerating global growth and a weaker consumer, the consumer sector at the moment is somewhat softer. The portfolio holds only a few exceptions (e.g., Ferrari, Richemont, Hermès¹) that have better visibility.

4. Looking past the summer period and beyond, how do you see the investment landscape evolving?

As we move into the latter half of 2024, investors should prepare for volatility but remain optimistic about the opportunities presented by our leading brands in the portfolio in the tech, healthcare and consumer space. With a focus on sustainable practices and strong competitive advantages, these brands are well-positioned to navigate the challenges ahead and deliver long-term performance.

Sources

[1] Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document. Holdings and/or allocations are subject to change.

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