A lot of local retail investors will have their investment portfolios heavily weighted to the big dividend-paying banks such as the Commonwealth Bank of Australia (ASX: CBA), or other traditional favourites such as Telstra Corporation Ltd (ASX: TLS). While these businesses do pay reliable dividends they’re not tomorrow’s blue chips and not likely to deliver much in the way of wealth-creating capital growth. Just look at the negative returns of the big banks and Telstra over the past 18 months. If you want long-term capital growth it’s probably best to look to the United States and other major economies that…
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A lot of local retail investors will have their investment portfolios heavily weighted to the big dividend-paying banks such as the Commonwealth Bank of Australia (ASX: CBA), or other traditional favourites such as Telstra Corporation Ltd (ASX: TLS).
While these businesses do pay reliable dividends they’re not tomorrow’s blue chips and not likely to deliver much in the way of wealth-creating capital growth. Just look at the negative returns of the big banks and Telstra over the past 18 months.
If you want long-term capital growth it’s probably best to look to the United States and other major economies that are building the world’s best technology companies thanks to the wide pool of tech talent and ideas coming out of the world’s best knowledge economies.
One fund offered under the Contango Asset Management umbrella and listed on the ASX is the WCM Global Growth Fund Ltd (ASX: WQG) (formerly Contango Global Growth).
The fund is managed out of California (home to Silicon Valley) by WCM Investment Management, which is currently responsible for managing around US$35 billion on behalf of different clients.
If investors buy into its WCM Global Growth Fund they’re getting exposure to what WCM reports is its core style of buying companies with widening moats and strong culture.
An earnings moat is a company’s competitive advantage that lets it consistently grow profits for investors over the long term. In today’s digital world a moat can be derived by superior technology, scale, or the complexity of a general product offering.
For example two of the fund’s largest positions that investors would gain exposure to are Visa Inc. (NYSE: V) and Amazon Inc. (ASX: NASDAQ). Both these businesses enjoy strong competitive positions via their global reach and relatively high barriers to entry to compete in their space.
To compete with Visa’s payment processing system on a global scale is now nigh on impossible for a startup, while Amazon’s global data storage (cloud) business has competition, but only from rivals such as Microsoft that have equally bottomless pockets.
Generally if you follow WCM’s investment philosophy of buying companies with widening moats decent returns should follow.
In fact the WCM Global Growth Fund has returned 26.2% over the past 12 months and an annualised 18.7% since inception in June 2017. These returns both being ahead of their benchmarked the MSCI ACQI ex-Aus World Index, but not over a long time frame as yet.
WCM Global also tends to rank company culture as an important factor in assessing companies, with one of its largest holdings being U.S. groceries retailer CostCo, which is regularly reported to be among America’s best employers.
Companies that align staff’s interests (just by keeping them happy for example) with the wider interests of the company tend to outperform those that have a high staff turnover, or little alignment via staff equity plans or the like.
Investors buying into the fund will also get exposure to the likes of hot tech stock Shopify Inc., or innovative healthcare groups like Steris and Boston Scientific.
As such the WCM Global Growth Fund is an easy way for local investors to get exposure to what are considered to be some of the better growth companies worldwide.
Fees are 1.25%, which is about average for an actively managed long-only global investment fund and given it’s outperforming its benchmark the active management style is adding some benefit in terms of returns for investors. As a growth-oriented fund no dividends have been declared as yet, and while it’s possible that it pays a dividend in the future, investors shouldn’t hold their breath.
Anyone focused on dividends could looks to another Contango Asset Management partner in the Switzer Financial Group (of business personality Peter Switzer fame) that has launched the Switzer Dividend Growth Fund (ASX: SWTZ).
Of course all these funds are subject to the usual equity market risks and investors should keep in mind the impact of fees on their investment returns.
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The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.