Contango Asset Management has joined forces with US investment manager WCM to launch a fund that offer an international portfolio of high-growth stocks.
Contango has launched a prospects for a new listed investment company, Contango Global Growth, seeking to raise a minimum of $55 million. The offer opened on May 9 and the expected Australian Securities Exchange listing date is June 23.
Contango argues in the prospectus that the S&P/ASX 300 Index is heavily weighted towards financial and resources stocks. The global investment universe offers a much wider range of sector exposures and, therefore, greater diversification.
The new company will provide investors with access to an actively managed listed global equities portfolio, which will be managed by WCM Investment Management, based in California. It manages more than $20 billion and is a global equities specialist.
WCM’s strategy is high conviction, actively managed and long only, investing in developed and emerging markets.
WCM intends to invest in quality global growth businesses with high returns on invested capital, superior growth prospects and low debt. Investee companies must have a durable competitive advantage or economic moat.
It will have 20 to 40 stocks chosen from a universe of more than 2400.
The performance objective is to beat the benchmark, the Morgan Stanley Capital International All Country World Index (ex-Australia) by more than three percentage points a year before tax and fees but with lower volatility than the benchmark.
Contango’s investment management agreement with WCM is for an initial period of five years.
The management fee is 1.25 per cent of the portfolio value and the manager is entitled to a performance fee equal to 10 per cent of the portfolio’s performance relative to the “total hurdle amount”, which is the benchmark plus the management fee. The performance fee is capped at 75 bps in any financial year and will be subject to recoupment of any prior underperformance.
The portfolio currency exposure will be unhedged.
The prospectus says: “To outperform the benchmark, the portfolio has to be meaningfully different from the benchmark. WCM’s emphasis on simple-to-understand, high quality consistent earning companies tends to direct it into traditional growth sectors, such as technology, healthcare and consumer companies.
WCM has managed this global growth investment strategy, the Quality Global Growth Composite, for nine years. It has produced an average return of 16.6 per cent a year over the three years to March (in Australian dollars), compared with an average return of 12.9 per cent for the Morgan Stanley index over the same period.
The WCM strategy produced a return of 12.7 per cent in the 12 months to March, compared with a return of 16.5 per cent for the index.
Eighty-four per cent of investments are in developed markets and 16 per cent in emerging markets. Geographically, 64 per cent of investments are in the Americas, 19 per cent in Asia Pacific and 18 per cent in Europe.
At the end of March, the biggest holdings in the portfolio were Amazon.com Inc, which accounted for 3.7 per cent of the portfolio, Reckitt Benckiser Group (3.5 per cent), medical supplier Cooper Companies (3.5 per cent), Canadian National Railway Co (3.3 per cent) and internet services company MercadoLibre (3.2 per cent).
Stocks in the portfolio have an average return on equity of 20.7 per cent, long-term growth in earnings per share of 16.2 per cent and an average ratio of debt to market capitalization of 30.3 per cent.