French resigned from M&G yesterday, citing a change in the investment environment that he was not able to navigate.
He says that the next decade of global growth will be driven by the expansion of sectors such as pharmaceuticals and technology, which will require the £4.2bn M&G Global Basics fund to change course and a new manager to pick stocks in new sectors.
Eaton says he and French have been investing in expanding global demand fuelled by emerging markets growth over the past decade, and he aims to follow that growth in to new sectors as these economies develop. "We are in the same sort of theme that he is: that we all live in one big global economic family with 1 billion westerners, but now with 6 billion non-westerners the sum of all global demand is growing handsomely and that demand is rising at a rate that exceeds global capacity. You are seeing pricing power emerging and that’s what we are looking for," Eaton said.
"The dynamic is all of those businesses that have great capacity. Technology and banking are part of it but if you are taking a top-down view, you are not unable to invest in tech if you are not a specialist."
Eaton says he has already shifted his fund into sectors with more value-added products to chase emerging markets growth, and data from FE Analytics suggests this has helped him outperform French in recent years.
JM Finn Global Opportunities is ahead over one, three and five years, having done better in 2012 and 2013 so far.
In fact, the fund is still a top-quartile performer in the IMA Global sector over five years despite its concentration on emerging markets growth.
Performance of funds vs sector over 5yrs
Source: FE Analytics
This year saw emerging markets hit hard by talk of the US withdrawing from the quantitative easing policy which has supported the sector over the past few years. However, although Eaton describes the year as "horrific", his fund has held up better over that timeframe, too.
Performance of funds vs sector in 2013
Source: FE Analytics
Eaton says that he has increased his weighting to more consumer-oriented sectors such as technology in recent years, which has helped.
"For us, pricing power first came in commodity markets. That pricing power left that industry partly because supply has risen so quickly. We have lots of tech stocks and I can’t believe M&G doesn’t too."
Eaton says his thematic style of investing favours companies with a large size and the ability to expand.
Whereas in the past, investing was about finding companies that could steal market share from the leaders in their sector, now it is about buying the biggest companies.
This is because they are able to expand faster into new markets and even if their market share just remains the same, they will see huge benefits from rising demand.
"Nothing has changed. It’s just the industries have changed or at least developed," he said. "It’s about pricing power."
Eaton says that his portfolio is now made up of roughly one-third essentials – such as food and fuel – and one-third the "want-to-haves" such as smartphones, cars and cosmetics.
The remaining third is invested in the logistics that facilitate global trade: ports and other such infrastructure.
Most consumer brands are still listed in the West, which gives a developed world slant to that part of the portfolio, but the logistics are largely in the developing world.
"A toll road in France is boring but a toll road in China is exciting because more and more vehicles are using it," he said.
ASML is an example of the type of stock the manager likes. The company makes lithography machines used in microchip production.
SanDisk, which manufactures flash memory cards, is another favourite, while the manager also holds 3D Systems, the manufacturer of 3D printers.
He also holds Google and Trip Advisor at the consumer end of the technology spectrum, as well as Time Warner and Walt Disney.
The manager was very surprised to hear French was leaving the fund, saying that he seemed very positive the last time he heard him speak in recent weeks.
Both the JM Finn fund and the M&G Global Basics fund are highly rated by the FE Research team and are members of the FE Select 100.
The JM Finn fund has less platform availability than its M&G rival and is marginally more expensive, with ongoing charges of 1.83 per cent to the 1.66 per cent of the larger fund.
Tomorrow morning FE Trustnet will publish an interview with the new manager of M&G Global Basics, Randeep Sommel, in which he will explain his plans for the fund.
