PARTNER INSIGHT: Bruno Paulson discusses the Morgan Stanley Global Brands Equity Income Fund
What is your investment process on the fund?
We look for incredibly high quality companies. We start with a simple quantitative screen, looking at return on operating capital. We like high returns on capital, large gross margins and companies paying some dividend. That's the simple screening which takes us down from a universe of about 2,000 companies to 200.
Then we do the detailed work on why these companies are profitable. We ask: What are the intangible assets that drive these companies? Will those assets stay strong over time? In particular, we look very hard at the companies' risk and by this we mean the risk of losing money, be it through ESG factors or other risks.
And then the final element is the management. The management are crucial. Even if you've got the best of franchises, the company will not compound if it's poorly managed.
What is your level of exposure to certain investment themes and regions - and why?
Our starting point is to invest in the highest quality companies, so there are certain sectors we just don't go near. We don't own any financials, utilities, telecommunications or energy companies. This is not a comment on the state of the economic cycle or the valuation of those sectors, we just don't own those sectors because they are low return-on-capital sectors.
So with this very high quality approach in mind, we pivot towards consumer staples, services and software, and some elements of consumer discretionary such as US media. It's not about any particular theme as such, but the fundamentals of the individual company and whether it meets our very demanding framework.
Regionally, therefore, we're just looking for the best companies in the world. For technology, that will tend to be in the US; for consumer staples it's Europe. But given that these companies are usually geographically-diversified global companies, where they're actually listed is secondary to where their economic exposure is.
Read more about the Morgan Stanley Global Brands Equity Income Fund here.