Devlin talks Swiss luxury goods, German auto suppliers and a Danish pharmaceuticals firm
Vincent Devlin, managing director and portfolio manager, is a member of the European equity team at BlackRock’s portfolio management group, responsible for continental European portfolio management. He joined BlackRock in 2008 from Scottish Widows Investment Partnership (SWIP), where he was an investment director responsible for managing European retail unit trusts. Before he joined SWIP in 2000, he was at Insight Investments from 1998 to 2000, as an investment manager for European portfolios. He began his career in 1994 with Co-operative Insurance Society, where he was an assistant investment manager, responsible for managing emerging market and European portfolios.
Which screens, if any, do you use?
The team uses a combination of externally sourced and proprietary screening tools to help filter the investment universe and identify ideas for further in-depth research. The screens are run weekly and focus on valuation metrics and earnings momentum. In addition, we produce a weekly data pack that contains a range of information including stock, sector and country performance, data on volatility, commodities, foreign exchange, credit default swap spreads, company metrics, insider transactions, fund positioning and flows.
Do you meet companies as part of your investment process?
Yes, we regularly meet company management teams at our London and Edinburgh offices, as well as at company site visits and conferences. We view this corporate access as an important part of our investment process. In recent years we have regularly conducted more than 800 company management meetings per year in the European equity team alone.
Tell me about some of your largest overweight positions – why did you buy and hold your top five holdings?
Richemont is a Swiss luxury goods company that owns Montblanc, Jaeger-LeCoultre, Cartier, Alfred Dunhill and a number of other well-known brands. Richemont offers attractive exposure to consumption growth, especially in Asia and other markets that are growing at a high rate, and is priced at a valuation that is very compelling relative to its growth potential.
Continental, a German auto supplier, is one of the highest-quality, large-cap, auto-related stocks in Europe and is able to benefit from the ‘mega trends’ of CO2 emission reduction and active safety in the global car market. The company is priced at an attractive valuation and at a discount to the broader sector.
Novo Nordisk, a Danish pharmaceuticals company and the dominant global franchise in diabetes treatment, has high levels of market share in many higher-growth end-markets for insulin demand, and we believe the group has significant potential to continue its strong track record of delivering double-digit earnings growth per year for the foreseeable future.
At the sectoral level, we began the second half of last year with an overweight position in the consumer discretionary sector, and we continued that holding at the end of December. We were also overweight in the industrials, utilities and telecoms sectors.
Are there any sectors you don’t like?
As at the end of May the fund is underweight telecoms and utilities, as well as industrials and financials.
What’s your average holding period?
We produce thorough stock research templates as part of our investment process and provide price targets focusing on 12 months from the date of research. Some stocks can be held for significantly longer than this within our portfolios if the company continues to demonstrate significant upside over time.
What’s your market cap cut-off?
It would be unusual for the fund to invest in companies of less than €1 bn ($1.32 bn) market capitalization.
Do you have a price target in percentage terms when you buy a stock and if so, what is it?
We do produce price targets and calculate upside from the current price. This is done on a 12-month time horizon. There is no specific upside for every idea we produce; we have a stock rating system from one (high-conviction buy) to five (high-conviction sell) to measure the attractiveness of the investment case. We do not have to automatically buy and sell stocks that are recommended; rather, it is at the discretion of the portfolio manager.
What balance between strategy and finance do you look for when meeting management, and how does this vary between your major overweight companies?
We tend to look at strategy and finance in tandem.
How should companies with high cash balances decide between dividends, reinvestment in the business and acquisitions?
If it is a high-return business, the first preference is for the management team to reinvest in the business to generate similar high returns. If this is not possible, we would prefer to receive the cash from the company to ensure it is best allocated and invested on behalf of shareholder interests.
