Greg Gipson cites three major investment themes that he and his colleagues are pursuing in managing the $354-million BMO Global Equity Class.
"Particular themes that we like," says Gipson, "are Big Brother, or global security; Big Pharma, or changing global demographics; and Big Data management. We do find opportunities across the different regions for each of the three themes."
Gipson is a vice-president and head of portfolio management, systematic investments, at BMO Asset Management Inc. in Toronto. He has been the portfolio manager of BMO Global Equity Class since November 2012, along with George Patterson. Among Gipson's other day-to-day responsibilities are co-managing BMO Global Small Cap. The six-member team, including Gipson, manages $4.8 billion.
The BMO team favours well managed companies that are trading below what they consider to be their intrinsic values, and those that are expected to consistently increase their earnings and cash flow. In turbulent markets, the fund may increase the number of holdings for further diversification. This year, says Gipson, there has been a "slight bias" toward growth relative to value.
The stock-selection process starts with a universe of roughly 1,600 securities that span 23 countries. That universe is initially whittled down to around 100 names. After further research and analysis, the portfolio will generally consist of 60 to 80 holdings. To mitigate foreign-exchange risk, the managers actively manage their currency exposure.
Among the top holdings in BMO Global Equity is Lockheed Martin Corp. LMT, a U.S.-based global-security and aerospace company. It illustrates the Big Brother theme. "The world is an increasingly volatile environment," says Gipson, "and we do rely on these global defence contractors and security providers, and they are primarily in the U.S." The stock price has done quite well, "so there might be some short-term profit-taking."
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Another top holding is Roche Holding AG, a pharmaceutical and diagnostics company based in Switzerland. "We paid around 180 Swiss francs (CHF) for it," says Gipson, "and right now it's trading around CHF280." Gipson likes the company's extremely strong balance sheet and good company management. He says Roche's product line-up generates sufficient sales and free cash flow to enable it to continue financing research and development.
Representing the Big Data theme is Seagate Technology PLC STX, a provider of data-storage solutions. "Currently, there's been some short-term weakness within technology globally and we've reduced some of the positions," says Gipson. He is "cautiously optimistic" because the technology names are all cyclical growth names, "but we still believe it's a theme you want exposure to."
Gipson brings extensive global experience to his mandates. American-born, he holds an undergraduate degree in economics and received a master of science in engineering, economic systems and operations research from Stanford University in 1997. Upon graduating, he joined the portfolio-management and research team at Barclays Global Investors in San Francisco, working on the U.S. and Japanese equity markets.
He then moved to Japan to work on developing and launching a Japanese-equity hedge fund with the firm. Following his experience with BGI, he spent nearly a decade managing investment teams and trading desks in the Asia-Pacific region.
Then at the end of 2008, Gipson moved back to the U.S. He took a year off work "to clear my head after being abroad," since he was looking for a very specific role before returning to the industry. The best fit for him proved to be BMO, where he began working in January 2010.
From a country perspective, BMO Global Equity will typically have half of its assets invested in North America, with one-quarter in each of Asia and Europe. Gipson notes that on the basis of the MSCI World Index, the U.S. would represent about half of the available large-cap investible universe.
Looking ahead, Gipson expects markets to be volatile and to be interrelated. "When you see any sort of soft macroeconomic data out of the U.S." he says, "markets may be a bit frenetic in the short term. Europe's relying on the U.S. to buy their goods, Asia, as well, they're looking to export. And so you've seen some softening in China, some softening in the U.S., and then investors start getting a little bit skittish."
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