It’s a challenge to launch new funds in an environment when global equity markets have been buoyant. Still, Habib Subjally, who heads the newly appointed global equity team at London-based RBC Global Asset Management (UK) Ltd., argues that picking an ideal time is nigh impossible.
“Returns compound over the long term. You will have some negative years and some big positive years — which are quite hard to predict,” says Subjally, lead manager of the $259-million RBC Global Equity, which was launched in March. “So you’ve got to be in the market. Second, the ebb and flow of competition and the composition of the global economy continues unabated. There will always be winners and losers.”
Subjally believes that finding companies with improving fundamentals, and at the right price, is the key to wealth generation. “The best way to do this is by investing in great businesses. But price is also a key consideration: if you overpay you’ll lose money, no matter how great the business. So balancing these two objectives is important.”
Subjally and his 10-person team look for four attributes, or “forces of competitive dynamics,” as he calls them. First, eligible firms must have a structural or competitive advantage. Second, businesses have to be able to take market share at the expense of competitors. Third, their overall end market is growing. Finally, management and corporate governance must meet high standards.
“At the end of the day, the company’s business model and its market share is a function of management decisions,” says Subjally, a bottom-up investor who monitors about 300 companies in the investment universe. “Assessing management’s objectives and capability is very important. How they execute on a day-to-day basis is critical. Corporate culture really matters.”
One representative holding among the fund’s roughly 60 stocks is Danaher Corp. (NYSE:DHR), a U.S.-based industrial conglomerate. “Their structural advantage is in continuous improvement in execution of new products, which are more energy efficient and cheaper,” says Subjally, noting that the firm is slowly moving into higher margin health-care equipment. “They are also very good at acquisitions and able to improve the productivity of these businesses significantly.”
Danaher stock is trading at around 20 times earnings, although Subjally ignores that metric and prefers to use discounted cash-flow analysis. “We take a long-term view and see considerable upside from here.”
A native of Karachi, Pakistan, Subjally is an accountant by training who earned a BSc in economics in 1986 from the London School of Economics. He worked for six years at Ernst & Whinney, as it was then known.
“Accountancy gave me a phenomenal experience. Every few weeks I used to go into a different business,” says Subjally, who was also involved in consulting and litigation support. “But what I really enjoyed was analyzing businesses and forming opinions about them. I wanted to focus on that rather than the regulatory side. That’s why I became an analyst and then a portfolio manager.”
In 1994, Subjally was hired by Mercury Asset Management and covered the energy, consumer staples and consumer-discretionary sectors. He became the head of research for a global equity team. Between 1997 and 2002, he managed a global equity fund known as Global Titans Fund.
Subjally left Mercury to join Invesco’s London office and ran the global equity team. But within a year he had to look elsewhere because management closed the London office.
For a brief period, Subjally switched to the sell side when he was hired by Credit Suisse First Boston. Yet as a long-term investor he realized that he was not compatible with the investment-banking culture. In 2006, he joined the global equity team at First State Investments (UK) Ltd., a division of the Commonwealth Bank of Australia. His task was to rebuild the team and refine the investment processes behind a US$2.5-billion global equity fund.
Last January, Subjally joined RBC and took with him a 10-person team, raising the London office to 39 professionals. Along with the launch of RBC Global Equity in March, RBC introduced RBC Global Equity Focus, which holds a concentrated portfolio of about 35 companies. For some years, RBC has also offered the $243-million RBC International Equity and the $1.1-billion RBC Global Dividend Growth.
Subjally meets with many companies and leaves individual stock analysis to his colleagues. “Ultimately, however, every stock that goes into the portfolio has to get past me.”
Subjally acknowledges that headwinds, such as fallout from China’s shadow-banking system, could pose challenges. Yet he prefers to focus on longer-term technology-driven changes, such as so-called “personalized” medicine. “These are about wealth generation — people are living longer, better lives,” he says. “We spend a lot of time looking at these trends, across the board.”
As for capturing changes in sectors such as financial services, Subjally points to the position in Blackstone Group LP (NYSE:BX). “They have a structural advantage in having bought very cheap assets during the global financial crisis,” says Subjally, adding that the private-equity firm is involved in real estate, hotels, and energy. “More and more pension funds are allocating money to alternative-asset managers like Blackstone. It’s a very well managed business — and meets all of our criteria.”