Peter Saacke, manager of the Artemis SmartGARP Global Equity Fund
Our approach to investing is based on our belief that inefficiencies exist in global stock markets because investors do not always act rationally. This creates opportunities.
We think the most efficient way to identify the best of these opportunities is through a rigorous quantitative process. We use a screening tool, SmartGARP, tried and tested at Artemis over more than 20 years. In essence, the process aims to find and invest in undervalued stocks that have improving fundamentals.
From a universe of around 7,500 global companies, SmartGARP helps to identify companies that are growing faster than the market but are trading on lower valuations than the market average. Ideally, these companies should be enjoying strong and consistent upgrades to profit forecasts and be under-owned by the investment community, while at the same time benefiting from helpful macroeconomic trends.
Companies are scored on eight factors (macro, investor sentiment, growth, valuation, estimate revisions, momentum, ESG and accruals) and ranked out of 100. Those that score over 90 can potentially be included in the portfolio but first need a further check. Because we recognise that all quantitative processes have their inherent limitations, human judgement now comes into play. Together with my co-manager, Raheel Altaf, I carry out due diligence on each stock before investing. The process promotes timely – and often against-the-trend – decision-making. This creates a portfolio that often looks very different to other global funds.
Favouring emerging markets…
For example, the fund currently has a pronounced overweight to emerging markets, in particular China. In these Asian markets, inflation is much more contained and economic policy is more supportive than in developed markets. The Chinese market has also seen a particularly wide dispersion in valuations, which has produced some interesting opportunities at the value end of the market.
Our largest Chinese holdings are not the index heavyweights you might expect. They include PICC Property, the leading property/casualty insurer in the country. Motor vehicle and health insurance are growth drivers, with insurance demands from an ageing population increasing. Yet the stock trades on a p/e of 5.3x, with a dividend yield of 7.6%*.
Other large Chinese holdings include China Railway Group (a play on Chinese construction and infrastructure build) and Bank of Communications (a major Chinese bank). This overweight to emerging markets is balanced by an underweight to the US. It is slightly overweight Europe and we have recently added to Japan.
Value bias
The nature of the SmartGARP screening tool means that the style bias of the fund can change over time. Over recent years, for instance, it has had a very pronounced value bias (see the chart below). As at the end of August 2022, the fund traded on a P/E of 6.8x, vs. 14.1x for the MSCI AC World, that is, a 52% discount to the market and one of the cheapest among its peers investing in global equities.
