e-fundresearch: Since when are you responsible for the fund management?
French: November 2000e-fundresearch: Do you have a benchmark? If so, which one?
French: The fund’s benchmark is the FTSE World Global Basics Composite Index.e-fundresearch: Are you also responsible for other funds at the moment?
French: Yes, the M&G Managed Growth Fund, the Prudential Growth Trust and the Vanguard Precious Metals and Mining Fund.
e-fundresearch: What volume do you manage at the moment?
French: Around €7 billion (as at 30 September 2008)
e-fundresearch: Regarding the performance: which performance did you achieve since the beginning of the year and in the years 2003, 2004, 2005, 2006, 2007? Absolutely and relatively to the relevant benchmark?
French: Year to date: top decile performance of -7.6%, ahead of the FTSE Global Basics Composite Index return of -11.8% and the Morningstar Equity Global sector average of -16.1% (Morningstar, as at 29 August 2008).
Year to 31/12/2007:
M&G Global Basics Fund: 10.3%
FTSE Global Basics Composite Index: 9.4%
Year to 29/12/2006:
M&G Global Basics Fund: 17.4%
FTSE Global Basics Composite Index: 10.1%
Year to 30/12/2005:
M&G Global Basics Fund: 43.6%
FTSE Global Basics Composite Index: 32.4%
Year to 31/12/2004:
M&G Global Basics Fund: 23.8%
FTSE Global Basics Composite Index: 12.0%
Year to 31/12/2003:
M&G Global Basics Fund: 24.5%
FTSE Global Basics Composite Index: 10.5%
Source: Morningstar, German database, price to price, net income reinvested.
e-fundresearch: How content are you with your own performance in the years before and this year?
French: My primary concern is delivering returns for the fund’s investors and it is pleasing that the fund has delivered good absolute and relative returns over the years.
e-fundresearch: How are you able to deliver added value for your investors with your performance?
French: The investment strategy and process of the M&G Global Basics Fund has remained the same since the fund’s launch in November 2000, and it is unlikely to change in the future. It is a global equity fund with a broad remit, investing in well-managed, asset-rich companies with good competitive positions that are well-placed to benefit from long term global trends. This offers major opportunities for the fund to invest in a wide range of companies, and to hold them for the long term while global trends develop and progress.
e-fundresearch: What were your biggest successes and your biggest disappointments in your career as fund manager?
French: Natural resources companies had an extremely strong run as they saw their returns transformed by Chinese demand in particular, and our holdings in this area were extremely beneficial to the fund’s performance over the past three years. As share prices followed upward the transformation in their returns, valuations in many cases became stretched, therefore we have been taking profits and significantly reducing our exposure to mining and commodities. Nevertheless, the fund is still able to benefit from what I see as extremely powerful long-term trends in the global economy that continue to support reasonably valued, well-managed mining companies on a selective basis.
At the same time, important contributions to performance have come from a variety of positions across a range of other ‘basic’ areas as increasingly demand from China and other developing economies moves on from basic materials towards more value-added and consumer-oriented areas. These have included companies from food and ingredients, metal recycling, drinks distribution, dentistry, cosmetics and consumer staples. A number of takeovers have also boosted performance.
Thankfully the fund has had to endure very few major negatives in recent years but all fund managers have to endure their share of problems. For example: US chicken producer Pilgrim’s Pride. I think we were right in our thematic assumption of rising global chicken consumption, but Pilgrim’s saw its margins squeezed by higher feed prices, while industry behaviour from a supply perspective has been less disciplined than we would have expected.
e-fundresearch: What kind of capital market situation do we have at the moment? How do you act in this environment?
French: Financial markets have continued to be extremely difficult over the past few months. Whatever the market situation, I will continue to look beyond the ‘noise’ of such short-term market movements and to focus instead on the long-term fundamentals of companies and their ability to deliver superior returns to investors over many years. This approach has served shareholders well since the fund’s launch in 2000 and should, we believe, continue to do so in the future. The fund’s gradual, conservatively managed shift away from commodities and into more attractively-valued consumer areas will continue.
It is pleasing to see that holdings in this area have generally held up very well through such difficult market conditions. Defensive consumer stocks held in the portfolio include Constellation Brands, Unilever, Kerry Group, Fraser & Neave, Colgate-Palmolive, Dentsply, which have all been performing relatively well.
e-fundresearch: What are the special challenges in this environment?
French: I try not to make forecasts about economic growth, but in terms of investment opportunities for the fund, I retain a positive, optimistic outlook. As the demand of populations in many developing economies continues to advance up the value chain from raw materials and agriculture, through infrastructure and transport, and on to consumer and lifestyle goods, the fund should continue to be able to invest in companies that are driving long term global growth. I believe there will continue to be a diverse range of attractively-valued investment opportunities in these areas.
e-fundresearch: What objectives do you have till the end of the year and in the mid term for the upcoming 3 to 5 years?
French: The evolution of the M&G Global Basics Fund will continue to reflect the seismic shifts taking place in the global economy. As the demands of populations in developing economies move up the value chain towards consumer and lifestyle goods and services, the fund will continue to invest in the companies that are responsible for generating a substantial part of world economic activity and are driving long-term global growth. I remain confident that the fund’s diversified nature and its bottom-up focus on undervalued, asset-rich, well managed companies provides the balance necessary to outperform over the long term and across a broad range of market environments.
e-fundresearch: Have you taken up any new hobbies in the last three years?
French: A luxury I enjoy is skiing – preferably in Switzerland. Also, a year ago I took up playing the piano.
