Harnessing the Rising Middle Class Across the Globe
MassMutual Premier International Equity Fund
Author: Ticker Magazine
Last Update: Jul 02, 9:26 AM EDT
|Established in 1995, the MassMutual Premier International Equity Fund capitalizes on the rise of the middle class across the globe. The fund relies on a bottom-up process to identify quality companies that are set to benefit from the long-term increase in the wealth of emerging market consumers and the proliferation of the Western lifestyle.
“Structural growth is our thematic approach to investing. We look at dynamic areas of the market that are set to benefit from the rising middle class.”
Q: Would you give us an overview of the history and the mission of the fund?
The fund was launched in 1995 with the goal to provide a portfolio of growing companies outside of the U.S. Since inception, the portfolio has been managed by George Evans. In 2012, Robert Dunphy joined him as co-manager of the fund. George and Rob are directly supported by the global team at Oppenheimer, which includes nine portfolio managers and 10 analysts. The subadvisor of the fund is OFI Global Institutional, Inc.
Q: Why should investors consider your fund? What are the unique features of the fund?
There are multiple reasons. First, there is a portfolio manager, who has been managing the fund since inception. We have a well-seasoned process; we’ve seen a number of global and macroeconomic shocks and have done well throughout them.
One of the differentiating features is that we have an outlook of five or more years, so this isn’t a quarter-to-quarter type of fund. It is a long-term, structural growth portfolio, where we invest in companies that are set to benefit from the economic drivers of MANTRA, or Mass Affluence, New Technology, Restructuring and Aging.
What sets this product apart is that we look at companies and industries that are set to benefit from the globalization, the increased wealth of emerging market consumers, and the proliferation of the Western lifestyle. These are long-term trends and so is our focus.
Q: What core tenets drive the fund’s investment philosophy?
The rise of the middle class across the globe is the core tenet that drives the portfolio. But the main philosophy is that consistent outperformance can be achieved by investing in companies that are set to benefit from structural growth and have sustainable quality. From a portfolio management perspective, the long-term focus is a key element.
Structural growth is our thematic approach to investing. We look at dynamic areas of the market that are set to benefit from the rising middle class. This can be anything, from investing in Airbus SE, because air travel has become affordable, to investing in a semi-conductor stock as we see more automation in the auto industry. There aren’t many commodity-related firms in the portfolio.
Q: What are the key features of the companies in the portfolio?
The managers of the fund look for sustainable quality. The companies should be able to sustain or improve their returns over the cost of capital. That tends to be a rather narrow universe. Oppenheimer looks for companies that maintain an elevated return on equity through structural advantage and companies that deliver strong shareholder return.
If a company had a bad quarter but the long-term tenets are in place, the management wouldn’t overreact. It would stick with a name as long as the long-term drivers of the investment thesis are intact. It is a portfolio with a relatively low turnover.
We focus on companies that rely not on the price of oil to drive earnings, but on an increasing demand for the end product or a structural change in the global economy. We also look for managements, who are able to effectively grow a company, maintain balance sheet discipline, and are appropriate stewards of capital to grow shareholder value. We avoid companies that depend on the price of oil, gold, or a particular mineral.
Q: Would you describe your investment process?
The fundamental bottom-up research drives everything, from security and sector weights to country and industry allocation. The analysts and the portfolio managers aim to identify high-quality companies that are able to deliver sustainable growth over the next five to ten years and are trading at attractive valuations. We look for businesses with high probability of maintaining above-average returns, so we focus on companies that have differentiated business models, strong balance sheets, proven management, and high barriers to entry. After we buy these companies, we aim to hold them for the next five, eight, or 10 years.
George and Rob have the final word over what goes into the portfolio. Their analysis leads them to a focus list of about 450 names that look attractive. Then the team monitors these names and based on a valuation analysis, we buy them once they hit an attractive point.
We have an entirely bottom-up, research-driven process with George and Rob making the final decisions. It is an international portfolio, which tends to focus on the large-cap universe, although sometimes the management will hold some mid-cap names as well.
Q: Does the portfolio team visit the companies and talk to the management as part of your process?
Yes, the analysts meet with the management of the companies. One of the differentiators of this fund and the other global strategies at Oppenheimer is the collaboration within the team. The analysts on this product travel with analysts from other products to meetings and collaborate on names. Because we are certainly a research bottom-up shop, we do a lot of research by going out and meeting with managers, visiting sites and headquarters.
Q: How do you deal with the different accounting standards across the globe?
The analysts are responsible for that issue. One of the advantages of Oppenheimer is the experienced team and the knowledge of foreign countries in terms of legal and regulatory structures. Also, the benefit of having a broad global team is that we have different cultures at work. There are different points of view from people with various geographic backgrounds.
Q: How do you coordinate the process with your subadvisor?
We monitor them on a daily basis by looking at what they’ve bought or sold. We also monitor the performance relative to both the benchmark and the peer group to make sure that performance is within expectations. If it isn’t, we seek to understand the reasons.
We meet with the portfolio managers on an annual basis, but we are in contact at least quarterly with each of our subadvisors to discuss our portfolios. Overall, we allow them to run the portfolios according to their mandate and we ensure that they continue to do so.
Q: Do the subadvisors avoid certain areas of investments?