Vontobel Finds Stable Returns in Global Consumer Staples

The Vontobel Fund Global Equities Strategy has steered a steady strategic course by focusing on companies that produce household and personal care products and market them globally. “If you look at the global portfolio, we have had extensive exposure to consumer staples,” says Rajiv Jain, who since 2002 has been chief investment officer for the strategy’s manager, Vontobel Asset Management in New York.

The numbers bear this out. The strategy’s benchmark is the MSCI World Index net of dividends, which currently allocates 9.89 percent of its funds to consumer staples. By contrast, Vontobel’s Global Equities Strategy, which is aimed at institutional investors, had 35 percent of its funds in consumer staples companies in November, more than three and a half times the benchmark allocation.

So far this year, Vontobel’s consumer tilt has caused it to underperform the MSCI World Index. During the first nine months of 2013, Global Equities Strategy saw a 10.43 percent return against a benchmark 14.43 percent return, according to eVestment, a Marietta, Georgia–based institutional data provider.

Yet Vontobel’s longer-term performance outpaces the benchmark. The strategy’s ten-year annualized return, for example, is 11.08 percent, against 7.86 percent for the benchmark, eVestment reports.

“We tend to protect better in down markets, and we tend to participate in up markets, which is a nice way of saying that we are underperforming in the up cycle,” says Vontobel Asset Management president and CEO Heinrich Schlegel, a Swiss native who has been with the company in New York since 1988. “The combination of the two through a full market cycle usually leads to a better-than-market return at less-than-market risk.”

Investors seem to appreciate that performance. The Global Equities Strategy has grown to $4.0 billion in assets as of November 30, up from just $345 million at September 30, 2011. Vontobel Asset Management, which had $44.4 billion in assets under management at the end of November, is a unit of Vontobel Holding, a Zurich–based private bank and asset management company.

Vontobel’s net inflows over the past eight quarters compare favorably with the broader category of global equity asset flows, according to eVestment. From October 2011 to the end of September 2013, Vontobel’s Global Equities Strategy recorded net inflows of $4.08 billion, fully 40 percent of the $10.26 billion of inflows recorded by global equity funds as a whole.

Other large global equity funds also saw significant net inflows. In the third quarter of 2013, Boston-headquartered State Street Global Advisors’ MSCI World Index Equity Fund received $6.64 billion in net inflows, pushing its total assets to $93 billion, according to eVestment. Edinburgh, Scotland’s Baillie Gifford & Co.’s Global Alpha Fund recorded $2.08 billion in net inflows, sending total assets under management to $23 billion, according to eVestment.

Jain says the Vontobel strategy’s performance is built on household consumer product names such as Philip Morris International, Nestlé, Reckitt Benckiser and Diageo. “These are large positions we’ve owned for some time,” he says. “We feel these companies have a very bright future ahead of them because the emerging-market consumption story is very much intact.”

He acknowledges that a number of investments have suffered from a global slowdown in growth after a very strong period. Even so, he adds, the pace of growth remains brisk. “It’s like toothpaste consumption. Just because the growth rate has slowed from 15 percent to 8 percent doesn’t mean people are going to stop using toothpaste seven days a week and go back to five days a week.”

Vontobel concentrates its portfolio on 35 to 55 names that are subject to rigorous review. “Our preference is for a company that creates its own cash flows, lives on its cash flow and reinvests its cash flow,” says Peter Newell, Vontobel Asset Management’s managing director and senior portfolio adviser. He contends that consumer staples companies are more likely to meet that bill.

Jain likens Vontobel’s approach to the philosophy behind the 1960s’ Nifty 50 stocks, such as Johnson & Johnson, Procter & Gamble Corp. and Coca-Cola Co. “You have had a long run of these names,” he says. “And I think something similar is likely to happen in the emerging markets, where there are large, growing populations that can afford consumer staples. These names will do well even if the world doesn’t do well.”

Morningstar Investment Management Europe has assigned a silver rating, its second highest of five designations, to Vontobel’s Global Equities Strategy. “This represents our positive view on this fund relative to the category,” says Dario Portioli, who works out of Morningstar’s Milan office. Morningstar named Jain its International Stock Fund Manager of the Year for 2012.

Morningstar cites the discipline and rigor of Vontobel’s investment strategy and its focus on selecting companies with long-term potential for growth in revenues and earnings. Portioli notes that the global equities strategy has performed well during the past three to five years, when the global economy was growing slowly, which plays to Vontobel’s strengths. “Of course, on the flip side, when the global economy is growing at a faster pace, this fund will probably lag others that are more oriented toward cyclical stocks,” Portioli adds.

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