This interview of Marc Craquelin and Constantin Sturdza was conducted by Nicolette de Joncaire of allnews and published on March 16, 2020 on the allnews website.
The Sturdza Family Fund: A portfolio built to weather extreme scenarios and capture the subsequent opportunities offered in such times.
Eric Sturdza Investments follows a long-term strategy in managing its Sturdza Family Fund, which launched in December 2018. Its goal? To reflect the group’s family values by delivering long-term capital growth through active investments in a portfolio comprised predominantly of equities and complemented by fixed income assets.
The portfolio’s primary objective is not designed to beat indices on a year-over-year basis but to provide protection in extreme scenarios in order to redeploy capital at depressed levels and therefore create value over the long-term.
In order to achieve the Fund’s objective the portfolio’s management team has a wide range of experience. In the equity space: Eric Sturdza, Constantin Sturdza and David Haynal. In the fixed income space: Eric Vanraes and Pascal Perrone.
At the core of the process, Eric Sturdza and Constantin Sturdza are responsible for asset allocation decisions alongside Marc Craquelin.
The Fund’s strategy is mainly based on managing a portfolio of international equities. Do you think this bias will be the main performance drive over time?
Our aim is to deliver capital growth through active management of an international portfolio of equities (51-81% of invested capital) and fixed income instruments (20-49%).
We are convinced that equities will be the long-term performance driver, particularly in the US. According to our observations, over 50 years or more a portfolio of US stocks achieves a return of more than 20-fold, considerably more than that of any other instruments / asset class. In our view, the main ingredients that create value and dynamism in the USA and equities in general remain firmly in place today.
What are your target companies?
We pick companies based on three overarching criteria: above-market average growth (currently 6.5% annually), the capacity to maintain this growth over the long-term, and an attractive share price. Thanks to these filters our investment universe is usually reduced to a list of 120-150 securities.
Can you give us some examples of growth themes and the firms that play them?
Besides quantitative selection criteria, we also look to profit from trends such as certain technology sectors and demographic changes. In general, we are looking for well-managed companies that deliver growth consistently above GDP.
For example, VMware, a US company that is an essential player in Cloud infrastructure with a proven growth track record and compelling position to further capture future potential. In a very different theme, we also like UnitedHealth, the US leader in health insurance. Another different example would be in the industrial universe, we have Canadian Pacific and Union Pacific. Both are strong long-term stories given the financial and environmental competitive advantages of moving goods by rail. These companies, market leaders in a consolidated industry, sit behind massive barriers to entry.
You have a heavy pro-US bias in your company selections. Why?
That’s right. Currently, 44 of the 62 positions in the portfolio are US-listed firms. Not that this means their activities are confined to the USA, far from it. What we particularly like about the US market is its liquidity, the depth of the market, and the availability of reliable information.
However, as investors, the biggest attraction is the quality of the companies listed there. It has a richer selection in some of our favourite sectors, like technology for instance. Finally, while the US market may seem more expensive, it still offers more compelling investment opportunities that fit our “growth” bias.
What is the role of the fixed income segment?
Our fixed income investments mainly serve the purpose of reducing the portfolio’s overall volatility and provide a source of relative performance during periods of sell offs in the equity markets. If equity markets should fall significantly, our allocation committee would increase the Fund’s equity exposure at the expense of fixed income issues. This means our bond team would look to sell securities, at high gains if possible and crucially in a liquid market.
As a result, the fixed income position is today invested solely in US Treasuries, nominal bonds and inflation-linked (30-year TIPS), which make up a notable portion of the portfolio. The TIPS position is partly a return to the family’s wealth management philosophy – protecting against inflation – and also a tactical play by our fixed income team to profit from the market’s excessive expectations for long-term inflation. Since launch and year-to-date, the bond segment has made a positive contribution to the portfolio’s overall performance.
Do you use hedging instruments?
In the equities segment we make marginal use of derivatives but without leverage. Selling put for example can be attractive, particularly at times of high volatility. In turn this strategy also allows us to seize tactical opportunities and is an ideal way to trim the weighting of some positions based on certain scenarios. The current market phase of the market is particularly favourable for this kind of strategy.
Markets are plunging at the moment. Have you taken the opportunity to buy some oversold stocks?
In December the portfolio’s equity allocation was close to 53% of invested capital. Now, it is more than 57%. That said, we remain cautious because the worst may not yet be behind us. Coronavirus aside, the year holds further surprises in store, notably with the US elections as we saw on Super Tuesday.
Furthermore, some signals remain contradictory. There is still no way to be sure what impact governments’ health policy decisions will have on value chains. Caution is advisable. However, our strongest conviction was to increase the Fund’s overall duration via the fixed income segment against a backdrop of more accommodative policy from leading central banks.
In this market environment, price levels will allow us to add to some of our positions and seize some cheap investment opportunities. We are confident we can profit from market corrections for the good of our investors.
Require further information about the Sturdza Family Fund? Please contact:
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+44 1481 742380
This interview was originally published on March 16, 2020 on the allnews website.
This document is issued by E.I. Sturdza Strategic Management Limited, the Investment Manager and Promoter of E.I. Sturdza Funds plc, an Irish domiciled fund. It is not intended for retail customers and is only made available for professional clients and eligible counterparties. Any opinions or estimates expressed herein are at the date of preparation, are subject to change without notice and cannot create any liability on the part of E.I. Sturdza Strategic Management Limited or E.I. Sturdza Funds plc. This document is for information purposes only and does not constitute an offer or recommendation to buy, sell or otherwise apply for shares in E.I. Sturdza Funds plc. The information contained in this document has been obtained from carefully selected public sources. Despite the exercise of due diligence to make sure that this information is correct at the time of publication, no guarantee whatsoever is given as to its accuracy, completeness or sincerity.