Amati Global Investors is prepping to launch a tech and healthcare heavy fund in the middle of the growth sell-off, but hopes to avoid the pitfalls of other managers by shunning mega-cap names and prioritising companies with sustainable cash flows and earnings.
The specialist boutique revealed on Friday it had received regulatory approval for the Amati Strategic Innovation fund.
Managed by ex-Aviva Investors global equities boss Mikhail Zverev (center), Graeme Bencke (left) and Dr Gareth Blades (right), it is billed as ‘go anywhere,’ all-cap, multi-sector and style agnostic, marking a departure from Amati’s traditional UK smaller companies and venture capital trust (VCT) focus.
However, Zverev told Portfolio Adviser the global equity mandate feels like a “natural extension” to Amati’s offering.
“Building this off the back of a smaller companies and VCT franchise gives us an amazing level of insight into early-stage innovative companies – some private, some pre-IPO, some recent IPOs,” said Zverev.
“The UK is one of the most innovative places in the world for tech, healthcare, materials science, and industrials and we get up close and personal to founders, entrepreneurs, senior execs, the technical talent in those firms.
“They might not be the right answer for the global portfolio, but they really understand what’s changing in their industry, so we get their insight and apply it to the global stock market.”
Casting a wider net
The fund will represent 30-40 of the team’s high conviction ideas. While the fund is style agnostic, it will have a growth bias through the cycle, but the team will shun mega-cap names. Currently most of the portfolio holdings are in healthcare (29%), industrials (22.5%) and technology (36%), sectors more typically associated with innovation.
Launching such a fund at a time when high-growth stocks have taken a beating from rising interest rates and the prospect of more quantitative tightening (QT) measures seems like a bold move.
However, this is why the trio is targeting not just ‘pioneers’ of innovation, like Tesla and Meta, which are more expensive, but are also focusing on ‘enablers’ and ‘adopters’.
An example of an enabler in the portfolio is Lumentum, which makes lasers and optical components for 3D sensing and industrial use and is Apple’s supplier of choice. On 14x earnings, it is much cheaper than ‘pioneer’ Ciena on 17x.
‘Not every dream will get funded over the next 10 years’
They are also not chasing “high growth” companies for the sake of it, ensuring companies have strong cash flow yields and sustainable earnings.
The fund is on a forward P/E ratio of 15.8x, making it cheaper than the MSCI ACWI, which trades on 16.2x.
It also has a free cash flow yield of 4.6% and higher EPS growth over 12 months at 19.6% than the index (15.4%).
“In a world where cost of capital is a thing again, not every dream will get funded over the next 10 years,” said Zverev. “We balance the risk, we spread the net a lot wider.”
The average holding has a market cap around £36bn, giving the fund ample liquidity. There are further guardrails around individual stock weightings, which cannot exceed 10%, and sector exposure, which cannot be higher than 50%, to avoid biases.
Thematic funds have less long-term appeal
Zverev said he’s “sceptical” about the long-term potential of thematic funds.
“By the time it becomes a theme, such that you can put it on the cover of your fund and sell it, it’s probably well understood,” he explained.
“We’re not the first ones to discover digitalisation but we think we’re one of the few, if our judgment is correct, who appreciates how much work normally for growth there is in digitalising industrial and manufacturing and field service.”
The initial offer period for Amati Strategic Innovation starts today and the fund officially launches on 23 May.