Laure Negiar dipped into the Comgest Growth World fund's 'subs bench', adding three stocks to the portfolio during the height of the Covid-19 market sell-off and topping up a number of long-term holdings.
The $999m fund added new positions in luxury goods giant LVMH, Indian mortgage lender HDFC and commercial aerospace engineer MTU Aero Engines in March, Negiar told Investment Week.
The fund manager said she also "reinforced a number of our long-term holdings" like Microsoft, Alphabet, Tencent and Alibaba as it looked to capitalise on a 2020 of outperformance.
Comgest Growth World has returned 11.5% year-to-date, according to FE fundinfo, well ahead of its MSCI ACWI benchmark's 3.6% and Investment Association Global sector peers' 4.3%. It particularly impressed in Q1, losing around half that of its benchmark index at -6.9%.
Negiar put that resilience down to "the significantly greater earnings resilience, and balance sheets, of our stocks relative to the market at large".
"We have continued to talk to our investors about balance sheet strength, and balance sheet discipline, for the past 10 years, while also telling them that we were not really sure that our companies were getting rewarded for those strengths," Negiar said in an interview.
"It has been a giant debt party for the last decade-plus, so at many instances over the past 10 years people really didn't give a hoot about that aspect of quality that we care about a lot.
"But in the current context, certainly at the peak of the crisis, we would certainly say that that mattered a lot to investors.
"We went the extra mile and stress-tested the balance sheets of every single one of our companies. We investigated a number of different scenarios for all of our holdings, and we came away feeling very confident that they could withstand the storm, even in very dire scenarios.
"That was really helpful in us building our confidence and also in our ability to buy some new names or increase existing holdings in light of our findings from those stress tests."
A trio of new additions
Those new names included the French retailer LVMH, which Negiar said the fund was "able to initiate a position at a very compelling valuation" due to concerns around the threat of store closures.
But Negiar said the firm was an "amazing brand manager", which was "one of its key sources of competitive advantage".
"They have consistently outgrown the global luxury market, while at the same time being more resilient because they have a nice balanced portfolio," she said.
"They aren't just in watches and jewellery, for instance, they have a nice diversified base of areas they are in within luxury.
"We got that one at a below 20 times trailing earnings - because forward earnings sometimes don't mean much in this Covid world - so we are very pleased with that long-term position."
HDFC is a company Negiar said the fund had been following for a long time, but "perpetually felt it was too expensive".
However, after markets began to worry about India's Covid travails, the stock came down to "a compelling price, especially for us as long-term investors".
The firm has huge market share, a great distribution advantage and deep customer knowledge, the manager continued.
That customer knowledge allows it to have a non-performing loans (NPL) ratio typically well below that of their peers.
"Their NPLs during the GFC were minimal, and they did manage to grow the loan book 7% or 8% during that time," Negiar explained.