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A Patient Approach to Global Growth Trends
Oppenheimer Global Fund
Interview with: John Delano

Author: Ticker Magazine
Last Update: Jun 21, 10:50 AM EDT
With a truly global focus and a long-term horizon, the Oppenheimer Global Fund invests in companies regardless of their location. What matters is whether these companies benefit from large global trends, like mass affluence or new technologies, which shape the economy over decades. Valuation is a key aspect for portfolio manager John Delano, who can patiently wait for the price to match the opportunity set.

ďWe start with a very large theme that goes on for decades. Then we find an industry that monetizes it and then we find a company within that industry that is best capable to capture the opportunity.Ē
Another example is Nidec Corporation, the Japanese manufacturer of electric motors. The company is poised for significant future growth because of the electrification of the automobile industry. It invented and developed the brushless motor technology, which is part of a trend that can continue over the next five, 10 or 30 years. Nidec is incredibly well positioned to see a substantial increase in the value of its products.

Weíve owned the name for more than a decade and it is still a great opportunity. Right now we see a company with well-positioned technology and a management team that shares that vision and is capable of executing and tapping into the available value.

For me, the next opportunity could come from anywhere and it depends on the market. I think that autonomous driving and car electrification are great trends, but if the market doesnít offer opportunities to invest in those areas at the right price, I may find the next opportunity somewhere else. I donít dictate where the opportunity comes from; I wait for the price that I am willing to pay.

Q: What is your portfolio construction process?

A: I am trying to find the 70 to 80 best ideas within the global stock market. The portfolio isnít focused on a benchmark; it is built with an absolute return mentality. Typically, we have holdings in technology, healthcare, industrials, consumer discretionary and even financials, but we donít own commodities, energy, telecoms or utilities. The reason is our style of investing in large themes and in the ability to create value.

The construction of the portfolio is driven by the return characteristics of each name and how the economic risks fit into the total portfolio. For example, after the Brexit vote we owned Prudential Plc, a UK insurer. The company had a relatively small operation in the UK and received almost 80% of its value from its U.S. and Asian operations. After the Brexit vote, the U.K. pound fell 10% versus the dollar and most currencies. The market was nervous about anything related to the UK, so Prudential stock fell 6% to 8% the day after the Brexit vote. That didnít make any sense from an economic standpoint. It actually created a buying opportunity, because the market was focusing on the listing, not the economics of the company.

The portfolio is geographically diversified, but that diversification is driven by opportunities, not by seeking certain exposure to specific markets. The location of the headquarters is often irrelevant, because the large multinational corporations have economic exposure in various parts of the world. For example, we own UBS and Credit Suisse, but a big part of their economic exposure is outside of Switzerland. The stated benchmark is the MSCI All Country World Index.

When we evaluate opportunities, we consider not only the business, but also the management, because we are partnering with them for many years. The fund has different holding period, which allows to compound value. The average turnover has historically been around 10% and we have names that have owned for over a decade. Because we own a different set of companies in the portfolio, the combination allows for differentiated returns over time.

Q: Do you hedge your currency exposure?

A: No, I donít. The portfolio typically has a number of companies with operations throughout the world. For each company, we consider where the currencies are today, what the opportunities are, and we aim to understand the risk. For example, Airbus has large cost base in euro and sells in dollars. If there are dramatic changes to the euro in any direction, they would affect Airbus. I am conscious of that exposure, but I donít hedge because there is enough opportunity in the names at the current levels.

Q: How do you define and manage risk?

A: It really comes down to the economic risk that I see for the companies and how they are positioned to deal with it. Then there are operational and financial risks. The operational risk is related to how well the management team is able to execute a strategy, while the economic risk is driven by the world economy.

We manage the risks through investing in companies that are positioned to do well and have management teams that I have confidence in. They should have strong balance sheets and strong operations from a financial risk standpoint. In terms of economic risk, we invest in companies that are exposed to trends that can limit the downside and improve the upside.

When I think about the portfolio in total, I think about the individual companies, their aggregate economic exposure and understanding what those exposures are for the portfolio.

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