Not even two years after he took the helm of Carmignac Patrimoine with Rose Ouahba, David Older has already put his stamp on the flagship fund. Older, who started his career at the French asset management firm in 2015, brought his own management style to Patrimoine’s equity portfolio.
Stemming from his background in technology and IT, Older has reinforced the fundamental bottom-up approach of Patrimoine, which is the main source of value of the fund, with a focus on long-term trends.
‘We generate value primarily through bottom-up investing and merge stock selection with top down calls,’ the firm’s head of equities says.
Older points out that the increased focus on stock picking has boosted Carmignac’s proprietary research: ‘When we look at equities, we start with the idea that everything is priced into a given stock that’s available in the public realm. However, we try to develop a differentiated view on the financial outlook for that stock, and we do this mainly through proprietary research.’
The head of equity is convinced that significant alpha generation and the identification of superior business models require excellent research capabilities, for example to perform thorough value chain analysis. ‘You can only get a full understanding of the stocks you’re buying if you have reliable data on hand that provides an extensive overview of a company’s suppliers, competitors, and clients,’ Older says.
In combination with it, the fund manager employs a top-down approach, with the aim of identifying long-term secular trends that will disrupt today’s companies and shape tomorrow’s winners. These trends are then developed into themes, offering a playground for David’s equity capabilities.
‘Secular growth is particularly well suited to a bottom-up approach and has been the backbone of Patrimoine’s equity component this year.’
Tapping into the trends of the future
Older explains that Patrimoine’s core equity portfolio is based on three big themes, including connected consumers, digitisation, and demographic and social changes.
‘The rise of digital consumers, with its wide-reaching impact on areas like ecommerce, online grocery shopping and video games is a multi-trillion-dollar industry,’ Older says. ‘Naturally, we want to get a piece of the action. Then we have digitisation, an equally enormous market with ample opportunities. Cloud software and fintech are increasingly making inroads, especially in the wake of Covid-19.’
From his point of view, fintech companies will trump traditional banks in the long run, even in developed economies: ‘This is due to macro reasons but also because traditional banks can’t benefit from the growing use of electronic payments. The pandemic has only accelerated this development. Now’s the time for highly specialised players,’ he says.
Moving on to the third theme, Older points out that it basically consists of two parts: ‘You can break down demographic and social changes into two subareas, consumer behaviour and consumer wellness.’
The former is based on luxury brands and Faang-sized firms as Older concentrates on the top and bottom ends of the investment spectrum. ‘The worst is being in the middle with its abundance of overvalued stocks. We invest in companies that either have a strong brand power or can offer very low prices. For example, you don’t want to own the classic airline companies that have no clear positioning. If you are in airlines today, you need to be at the cheap end,’ he says.
Consumer wellness focuses mainly on healthcare and comes with a wide exposure to pharma, biotech, medtech and managed care companies. While Older takes an opportunistic approach on big pharma stocks due to their tendency to ‘a weaker growth trajectory’, he appreciates that revenue streams in the sector are uncoupled from the economic cycle, which makes them a defensive play. ‘Plus, big pharma companies are often dividend payers,’ he adds.
Something similar applies for the equity portfolio’s managed care segment. ‘Managed care is a growing market driven by demographics. It is asset-light, cash-generative and offers defensive growth as it is a pure play on increasing spending in US healthcare,’ Older says.
Biotech and medtech, however, need a long-term view in his opinion: ‘These industries tend to be more volatile and stretched in terms of valuation, especially in the US. Diversification is key in that regard.’
In June this year, Patrimoine’s largest sector exposures included consumer discretionary, information technology and healthcare, with more than half of the equity portfolio invested in North American stocks, followed by European and Asian equities.[1]
Carmignac Patrimoine is a common fund in contractual form (FCP) conforming to the UCITS Directive under French law. Risk scale: 4 (for the share class A EUR Acc). Risk Scale from the KIID (Key Investor Information Document) from 1 (lowest risk) to 7 (highest risk). Risk 1 does not mean a risk-free investment. This indicator may change over time. Recommended minimum investment horizon: 3 years. Main risks of Carmignac Patrimoine – EQUITY: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization. INTEREST RATE: Interest rate risk results in a decline in the net asset value in the event of changes in interest rates. CREDIT: Credit risk is the risk that the issuer may default. CURRENCY: Currency risk is linked to exposure to a currency other than the Fund’s valuation currency, either through direct investment or the use of forward financial instruments. The Funds may have specific investment limits, as mentioned in their respective prospectuses. The Fund presents a risk of loss of capital.
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[1] Source: Carmignac, Patrimoine Equity Exposure – June 2020. (https://www.carmignac.co.uk/en_GB/funds/carmignac-patrimoine/a-eur-acc/equity-component?gclid=EAIaIQobChMI0crbssWS6gIVh7PtCh1QZQHmEAAYASAAEgLuCPD_BwE&gclsrc=aw.ds)