US payments giant Mastercard, clinical research company Icon and UK online car dealer Auto Trader are three companies benefiting from long-term global trends that show no sign of abating, according to Janus Henderson’s Steve Weeple.
While some investors may get caught up with geopolitics and trying to predict the movements of global markets, Weeple believes you shouldn’t waste your time trying.
Instead, the portfolio manager on the Janus Henderson Global Equity fund prefers to focus on the more predictable, long-term secular trends that are playing out across the global economy that do have the ability to drive business opportunities for a number of companies.
One such trend is the changing demographics of the developed world where the population is becoming increasingly more aged.
According to Weeple, currently more than 20 per cent of the population of the developed world is over 60 years old, and that will rise to more than 30 per cent in the next 10 to 15 years.
He said: “So, we look at that trend and we say that’s going to put more and more pressure on fiscal budgets, on healthcare budgets with less tax payers and more dependents. We’re going to require greater efficiency up and down the healthcare supply chain.”
Performance of stock over 5yrs
Source: Google Finance
One of the companies the Global Equity fund invests in to play this theme is Icon, a clinical research organisation that Weeple said helps pharmaceutical and biotechnology companies manage their late-stage clinical trials. It is the seventh-largest holding in the global equity fund.
He said: “It’s a company that just helps manage down the cost of getting a drug to market. One of the leading think tanks in the healthcare world estimates it takes the average drug around $2.5bn to get it to market.
“But it also estimates that if you can take down that time to market by 10-15 per cent, then you can save hundreds of millions of dollars in terms of that development cost.”
Weeple noted that the company is now focusing on diversifying its customer base, having started with US pharma giant Pfizer as its biggest client.
He added: “We look at Icon, its founder is still very much involved, and it’s had a fairly conservatively managed balance sheet over time.
“It hasn’t taken on large amounts of debt to do big acquisitions, lots of it is organic growth. It has kept on improving its margins, delivering double-digit growth and it is doing a great job for its shareholders.”
Another global long-term trend Weeple sees is in the payments space where there is a move from cash and cheque to digital and paperless.
He said: “It’s a fairly obvious trend, all of us are aware of it, but still pretty amazing I think that over 50 per cent of global consumer spend is still on cash and cheque.
“And in some parts of the world, in India it’s 96 per cent, in Japan it’s in the high sixties, even in the US, 35 per cent by some estimates of all consumer spend is cash and cheque.
“So, we look at a company like Mastercard, which is a bit of a household name, but a company that has done a terrific job of benefiting from that long-term secular trend.”
Performance of stock over 5yrs
Source: Google Finance
The manager said the company’s competitive advantage is shown through its operating margins of more than 50 per cent and a return on equity of more than 70 per cent.
Mastercard has also generated $5bn in cash per year and during the past five years it has given more than 80 per cent of that back to its shareholders.
Weeple alluded to the global secular shift towards paperless and digital as allowing Mastercard to keep growing the business.
“If you look back at the history of Mastercard, even through the financial crisis when consumer spend was suffering significantly, Mastercard was still able to grow its revenues,” he said.
“Even in 2009 it was still able to deliver really strong earnings growth despite the fact that overall payments volume was down.”
The last thing Weeple commented about Mastercard, which is the ninth-largest holding in the fund, was its huge reach.
Indeed, despite new players entering the space at the front end such as Apple Pay, Android Pay, Square and Venmo, Mastercard will remain the card with which consumers spend from.
“Regardless of which one of those front-end apps is going to be the winner, nearly all of the business models they will run over Mastercard or Visa wires. So, we think it’s the picks and shovels way to get exposure to that trend,” he said.
The last long-term shift the portfolio manager mentioned was the transformational impact of the internet on advertising and the shift from print and broadcast to e-advertising.
This is something that Auto Trader [UK] – the sixth largest holding in the global equity fund – is benefitting from.
Performance of stock since listing on London Stock Exchange (LSE)
Source: Google Finance
Weeple said: “It’s a dominant franchise providing a great service to the dealerships and the consumers that are looking for the used car market.
“Even though there are clearly economic wobbles going on in the UK, for us this is an interesting example of a company that keeps on delivering good growth, particularly its ability to keep on expanding its service into the dealers it’s working with.”
He added the company has really strong margins, really strong cash flow generation and a really capable management team that has run the company through some of its issues over the years.
“So, for us this is just another great example of a company that benefits from that ongoing secular trend that you’re seeing more and more incremental advertising dollars go online,” he said.