Last updated: May-17-2019

5/21/2019 7:21:58 PM
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Veteran business journalist and investigative reporter Olev Edur takes you behind the performance numbers for close-up look at the people, processes, and portfolios that make investment funds tick.

By Olev Edur  | Tuesday, May 07, 2019

Calling the multi-year
FundGrade A+ Award-winning TD Global Entertainment & Communications Fund a Global Equity fund is a bit of a misnomer, as it obviously has a sectoral focus. And the fund’s portfolio manager, Paul Greene at T. Rowe Price in Baltimore, admits “communications and technology” would be a more apt description of the fund’s bailiwick.

But nomenclature issues aside, this is one of a very small handful of Canadian mutual funds with a 10-year average annual compounded rate of return through March 31, 2019, in excess of 20% (20.1% to be exact). And it is not managed like your average global equity fund.

“We’re interested in anything to do with technology, media, or telecommunications,” Greene says. “And we don’t have any allocation mandate. It’s wide open. We’re a best-ideas fund, although we do generally put companies into one of two buckets.

“The first bucket is for more dynamic, innovative, and disruptive companies that are faster-growing, although they’re more expensive,” Greene says, citing what have now become household names: Amazon, Google, Netflix, Facebook, Alibaba....

But what about Inc.’s (NASDAQ: AMZN) huge valuation? “There is a lot of skepticism about these companies,” Greene acknowledges. “People say the P/E ratios are crazy, or they don’t make any profits, but if you look at Amazon (the fund’s largest holding at 12.9% of total assets), they’ve got a large market share, a long-term focus, and they’re consumer-oriented. If another company wanted to enter that market, it would involve some extremely heavy lifting because it’s part digital and part physical. That limits competition.

“What we look for and love, though, is that Amazon has used a lot of high-return ways to reinvest their profits,” Greene adds. “Amazon really is profitable; it’s just that most of their profits are reinvested and that has masked their profitability. Now they’re growing so fast their profits are outstripping their ability to reinvest.

“The second bucket is for more established and mature firms,” Greene continues. “They grow, though not as dynamically, but they hold up better in adverse markets. These are companies that provide infrastructure, such as tower operators or wireless and broadband, companies like American Tower Corp. (NYSE: AMT) or Comcast Corp. (NASDAQ: CMCSA). If you use Facebook, for example, you need access, and that’s what these companies provide.

“In this bucket, we look for durable differentiation,” says Greene. “Most people acknowledge that tower operators, for example, are like monopolies because it’s hard to put up new towers, but there’s also shared economics – these towers have multiple users, and for the carriers it’s better than a proprietary tower because it’s faster and lower-cost, so everyone benefits. Also, growth in data consumption is unabated, and there are a lot of things they can do to handle this growth – new technologies like 5G, more spectrum, more nodes. We don’t see anything that will disrupt this growth trend.

“The really big picture is finding companies that are highly durable, that can compound value at above-average rates over the long term ,” says Greene. “We concentrate on three things – firstly, all the normal things like a good business, good management, valuations that make buying easier and so on; secondly we look for insights that the market doesn’t understand; and then we try to build conviction through research. If our view is confirmed through research, we will buy, but we usually start small. We do more research and gradually build our position, and growth in the company itself creates an even bigger position.

“Also, once we do find a good company, we don’t get scared out,” Greene says. “For example, we owned Facebook Inc. (NASDAQ: FB) privately before there was an IPO, and when it faltered we bought a lot more. The company has done a great job during a very painful period over the past 12 to 15 months, and it’s still continuing to generate above-average returns. The difficulties did not change the underlying attractiveness.”

The net result is a fund with a fairly concentrated portfolio (54 public and 14 private companies) and one of the lowest turnovers of any fund. “Our turnover is in the single digits.” says Greene, adding: “It’s an approach that makes sense to us. There’s a surprising amount of short-term thinking in the market, so we do feel we’re unique.”

Olev Edur is an experienced financial and business journalist and a frequent contributor to the Fund Library.

Notes and Disclaimers

© 2019 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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