Jeff Munroe- Newton Investment Management Ltd.

Deleveraging is among this manager's 14 themes.

Michael Ryval 22 February, 2013 | 7:00PM
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Jeff Munroe doesn't get hung up about what he calls "noise" in the global markets, such as the state of China's economy and the U.S.'s ability to deal with its massive government debt. Instead, the Canadian-born lead manager of the $105-million TD Global Growth takes a longer-term perspective, relying on investment themes to identify promising names.

"We like to create a longer-term framework for our themes, which are our guide for how we see the world unfolding," says Munroe, 48, investment leader, global equities, at London, England-based Newton Investment Management Ltd. "Before the financial crisis we had some very clear thoughts on how we saw the world going. We've evolved our themes through the crisis, and are at a point where we believe that deleveraging is an important phenomenon in the world. Our view is that consumption will be subdued and governments are looking to retrench."

While deleveraging is one of the 14 themes, others include the networked world, financial concentration and large-cap laggards. "Each one of the themes is looking to capture a certain trend we see in the world," says Munroe. "What we have done in the past couple of years is describe some themes in terms of a challenge -- and deleveraging fits in that category. But other themes, such as the networked world, are more of an opportunity and are very positive."

In the case of deleveraging, Munroe and his research team are focused on companies with global franchises, strong dividend yields and high free cash flow. "They are the blue-chip kind of equities that should, over time, give you great returns as an equity investor," he says.

"If you have a business growing at 5%, for instance," says Munroe, "and with a bit of operational gearing you can get to 7% or 8% growth a year, and use excess cash to buy back stock, then the total shareholder return in this environment should be quite attractive. The deleveraging theme is encouraging us to embrace these kinds of stocks. Those characteristics are fine in this environment and bring us to a range of big consumer companies that have global reach."

Although company policy preludes Munroe from discussing companies held in the fund, Morningstar's current list of the top holdings provided by TD Mutual Funds includes Swiss-based food confections maker Nestlé SA, British American Tobacco PLC, and Swiss drug-makers Roche Holdings AG and Novartis AG.

A native of Montreal, Munroe is a 26-year industry veteran who grew up in Halifax, where he earned a bachelor of business administration at St. Francis Xavier University in 1986. He spent a year at the Université de Savoie in France, where he studied French literature.

Fluently bilingual, Munroe returned to Canada and worked for two years at Towers Perrin, where he designed a database on the Canadian investment-management industry. As he was more interested in investment management than the actuarial side of things, Munroe went back to school and graduated with an MBA from the University of Western Ontario in 1992. He spent his summers working for Montreal-based Pembroke Management Ltd.

After spending the summer of 1992 in the former Soviet Union, as part of UWO's Leader Program, Munroe stopped in London where he had an interview with Stuart Newton, the founder and head of Newton Investment Management. At Newton's invitation, Munroe joined the firm as an equity analyst and quickly rose in the ranks to look after Asian stocks. By 1995, he became a global equity manager.

In 2001, Munroe was appointed chief investment officer. He now oversees a team of 22 analysts, after having assumed his current position in January 2012. A subsidiary of London-based BNY Mellon Asset Management (in turn owned by Bank of New York Mellon), Newton has about 50 billion pounds sterling (C$78 billion) in assets under management.

The Newton team has managed TD Global Growth since July 2009. Over the three-year period ended Jan.31, the 3-star rated fund returned an annualized 4.5%, lagging the 6.3% median return in the Global Equity category. In the past 12 months the fund has surged 15.2%, outperforming the 12.2% median.

The recent improvement might be attributed to Munroe, who took over the portfolio last February. "We needed to make some adjustments and re-examined each of our companies to make sure they were still connected to our themes and wanted to know that investment cases were still valid," says Munroe. He has reduced the 100 holdings to about 80, with single positions limited to 2.5% of fund assets.

Although the still very broadly diversified fund has become somewhat more concentrated, Munroe continues to follow investment themes such as the networked world. In particular, he likes telephone companies that are operating large networks.

"There is huge demand for bandwidth and we're interested in those companies that are on low multiple ratings, very high dividend yields and perceived as not being able to grow in this environment," says Munroe. "They could well be significantly undervalued." Some key names in the portfolio include AT&T Inc. T and Sprint Nextel Corp. S.

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Michael Ryval

Michael Ryval  is regular contributor to Morningstar. He is a Toronto-based freelance writer who specializes in business and investing.

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