Searching for the "boring" quality global equities from Brazil to Paris

This article was produced in partnership with Mawer Investment Management

While Mawer Investment Management—subadvisor to Manulife Global Equity Class—may espouse a mantra of “boring” investing, their global equity portfolio is anything but mundane. Instead, it embodies a relentless search for robust, quality business cases, traversing far and wide in the pursuit of value.

Central to their investment philosophy are the principles of investing in wealth-creating companies, led by excellent management teams, at a discount to intrinsic value or shorthand the three G’s: good businesses, led by good management, at a good price. While this three G’s philosophy resonates with Warren Buffett and Charlie Munger, Manar Hassan-Agha underscores Mawer’s unique edge lies in its people and the execution of a structured investment process.

The power behind Mawer’s research team

With over 40 research members from diverse backgrounds, speaking multiple languages, Mawer harnesses cognitive diversity to challenge conventional wisdom and drive innovation in investment decisions.

In conversation with Wealth Professional, portfolio manager, Global Equity, Hassan-Agha sheds light on Mawer’s approach to portfolio management. Hassan-Agha's path to Mawer was paved with experiences in private equity and a stint in M&A transaction services.

His transition from private equity to public market investing was driven by a profound passion for understanding businesses at their core. Drawing from his private equity background, Hassan-Agha emphasizes the importance of aligning with management teams, a philosophy deeply ingrained in Mawer’s approach.

“There's something compelling about investing with our senses—seeing, touching, and feeling, to forge a visceral connection with the investment case. Building tangible relationships with management teams in person is invaluable. I’m often struck by how much more candid they can be face-to-face compared to virtual interactions,” maintains Hassan-Agha.

Uncovering value around the globe: insights from São Paulo and Paris

What sets Mawer apart is not just their ability to identify value, but their willingness to travel far and wide to find it. Hassan-Agha details, “I recently traveled to three cities: São Paulo, Paris, and London, and I gathered some fascinating insights. In Brazil, I was particularly impressed by the explosive growth of the FinTech industry.

“At a simple park stall, I bought coconut water and was amazed at the payment options available: cash, credit cards, and something called Pix, which is the central bank's payment system. Remarkably, over two-thirds of the population have used Pix. It's incredible that you can buy something as simple as coconut water using advanced payment technologies like Visa, MasterCard, or Pix.”

In Brazil, financial regulation has undergone notable transformations in the past decade. Unlike the common perception of regulation hindering innovation, the Brazilian government's regulatory adjustments have propelled many FinTech companies forward.

Hassan-Agha further highlights, “I had a conversation with the CEO of a Brazilian investment management company, a holding in our global equity and other strategies. They stand out as the leading independent broker-dealer in Brazil, boasting the largest network of independent financial advisors in the country.

“This is particularly intriguing given my discussions with some of the top five traditional Brazilian banks who have extensive brick-and-mortar branch networks and still control approximately 80 percent of Brazil’s investment assets. This provides ample opportunity to gain market share from these legacy institutions burdened by high operating costs, bureaucracy, and poor customer service.”

Another compelling portfolio-holding story comes from Paris, where Hassan-Agha was in talks with the CEO of the second-largest ad agency globally, based in Paris. One key insight from his conversations was the increasing convergence of marketing and technology.

This convergence adds complexity to advertising strategies, necessitating closer coordination between Chief Marketing Officers and Chief Technology Officers within organizations.

Publicis stands to benefit from this trend with its integrated value proposition spanning the communication value chain including data and technology solutions. Moreover, the fragmentation of media channels, with emerging platforms like retail media, presents new opportunities for advertising. With channels like Amazon.com and Walmart.com gaining prominence, Publicis is poised to assist clients and leverage its buying power as the #1 media buyer in the US, buying $1 out of every $3, in navigating this evolving landscape to determine the most effective channels for their advertising efforts.

Diverse perspectives, consistent process: Mawer's integrated approach

Mawer is not simply diverse in their portfolio holdings but strive to adopt a unique perspective. For instance, conducting over 1000 management interviews annually underscores Mawer’s commitment to diverse perspectives. These interviews are typically conducted in the language and cultural context most comfortable for the management team.

Hassan-Agha says, “Cognitive diversity is integral to our culture. You have to think differently and be right, so thinking differently is a necessary but not a sufficient condition for success. Another integral pillar is one of merit, where best ideas prevail over hierarchy.

“The second piece is the execution of a structured process. Recognizing that emotions like fear and greed can jeopardize client capital, we adhere to a disciplined approach to decision-making. Our approach is characterized by a structured process that facilitates consistent, informed decisions.

“Furthermore, our firm's strength lies in its integrated approach. With nine distinct equity strategies guided by the same investment philosophy and process, we ensure alignment across the organization. In addition, broad-based alignment is fostered through our team’s use of a proprietary knowledge sharing platform we call M42. Our teams have been putting notes on companies since 1998 and knowledge tends to compound over time.”

The role of Monte Carlo simulations in Mawer's approach

An integral part of Mawer’s investment process is the systematic ranking of stocks based on quality and valuation matrices. Additionally, Mawer utilizes sophisticated tools like Monte Carlo simulations to assess the probabilistic range of outcomes, reinforcing a disciplined and rational approach to investing.

In employing Monte Carlo simulation, Mawer adopts a probabilistic worldview, recognizing that the value of a company lies within a distribution of potential outcomes rather than a precise point estimate. While traditional discounted cash flow analysis may offer a single valuation, it often falsely implies a level of precision that may not be realistic. Monte Carlo simulation addresses this limitation by simulating variables using different distributions, providing a range of outcomes and their respective probabilities.

Strategy for long-term outperformance

“Market leadership fluctuates over time. Our approach involves evaluating securities from a bottom-up, fundamental perspective,” Hassan-Agha says. “We seek exposure where we believe it aligns with our philosophy and where we perceive we have an edge. The desire to outperform all the time is an obstacle to outperform over time.”

This is an important point for many investors in Canada who continue to face sticky inflation, interest rate uncertainty and lower economic growth prospects. Taking a boring approach to global equities may be just the ticket for investors seeking a solution that’s in it for the long haul.

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