In a fairly uninspiring sector, a catch-all for generalist equity funds, the Merrill Lynch Global Titans Fund stands out when looking for a fund to fulfil the Household Names criteria. Not only is it run by one of the major fund management houses in the world but the companies in which it invests are also household names.
The portfolio embraces globalisation by concentrating on the world's largest and most powerful companies. These are the ones with global brands that have shed their allegiances to a national identity and focus, instead, on competing globally.
The investment process isn't based solely on finding the world's largest companies and investing in them on a 'big is beautiful' approach. Good companies aren't always good investments. Good investments are measured by the share price, which is likely to have already factored in any good news about a company. Evaluating the share price in order to test expectations against the market consensus is crucial in deciding which shares to own and which to avoid.
Merrills has a team of 11 dedicated global equity analysts, which is headed up by Dr Ian Rowley and enjoys access to the vast resources within the company. The highly-educated Rowley, who boasts a PhD in Financial Economics, has over 14 years investment experience, gained first at UBS and more recently at Merrills. Global equities have formed the core of his experience.
Research is organised along global sector lines, with the emphasis placed on bottom-up global stock selection. The team is looking for companies with high-quality management and a leading business franchise, as they believe such criteria will form the basis for long-term shareholder value. Emphasis is placed upon primary research with a lot of attention on company meetings. Third-party research is also referred to but all investment decisions are based on the team's own research.
The fund's performance chart, since launch, does not make particularly pretty viewing. World equity markets have experienced a very difficult time over the past two years and this has translated into the performance of the fund. That said, the fund has merely fallen in line with both its benchmark, the MSCI World index, and its peer group, the Global Growth sector, but along with this fact comes the opportunity.
Often investors appear too happy to invest at the top but not at the bottom. Recently, brave investors have returned to equities and the large liquid, quality companies have been their first port of call. In light of what has happened at Enron, size does not provide guarantees but, the team does seek out strong balance sheets and robust cash flows. Currently, large companies are better placed to protect margins and improve profitability through their wider revenue base. Put simply, the strong global leaders are the most likely to survive.