Ken McAtamney and Andy Flynn, CFA, co-portfolio managers of the William Blair Global Leaders Fund sat down with Barron’s recently to discuss how they identify leading companies across the globe, which companies they view as global leaders, and where they see opportunities and risks in 2018.
The Barron’s profile highlighted that the investment team looks for companies with above-average returns on equity, strong balance sheets, and consistent above-average earnings growth. But McAtamney noted that growth hurdles depend on which stage a company is in. For example, they look for revenue growth of at least 15% for earlier-stage companies, about 10% for middle-stage companies where growth is still expanding, and 3%-4% for more-mature companies that can generate growth in a “highly cash-generative way.”
“One of our favorite metrics is return on investment capital, which is the best proxy for a company’s ability to invest in the business to fund its growth,” McAtamney told Barron’s.
“One of our favorite metrics is return on investment capital, which is the best proxy for a company’s ability to invest in the business to fund its growth.”
— Ken McAtamney, Portfolio Manager
McAtamney added that global leaders also differentiate themselves from their peers by having a sustainable competitive advantage, which enables them to grow and defend their market share and reinvest into their businesses.
Global leaders can run the gamut from megaglobal companies to relatively unknown names. In the Barron’s article, McAtamney and Flynn highlighted several companies that they believe are global leaders.
2018 Opportunities and Risks
McAtamney said that the team sees broadening economic growth in developed markets, including Europe and more recently Japan, and stabilization in emerging markets. In 2018, “we see an opportunity to move outside the U.S., specifically into Japan and China,” said McAtamney.
Abenomics is fueling the growth in Japan, according to Flynn.
“A decade ago it would not be uncommon to talk to a chief executive about half the company’s market cap sitting in cash,” Flynn told Barron’s. “That has changed with Abenomics. We now have a generational change to focus on returns rather than cash. There’s a real opportunity for companies to focus on corporate governance, put society to work more efficiently, and bring in more females into the workplace—all important steps to make Japan more competitive globally.”
While global growth is improving, valuations are the biggest concern, according to McAtamney.
“We have seen an unprecedented run at low levels of volatility in the markets,” McAtamney said. “The highest-quality companies that have seen valuations rise when growth was scarce may be more vulnerable. We are focusing our research lately on more cyclical areas of the world where the future growth is not reflected in the shares.”
William Blair Global Leaders Fund Facts
- AUM: $210 million as of November 30, 2017
- Portfolio holdings: 60-80
- Share Class: WGFIX (I shares); WGGNX (N shares) 1
- Fund Overview
1 Class N shares are available to the general public without a sales load. Class I shares are available only to investors who meet certain eligibility requirements.