Thursday, June 1, 2023

We seek exposure to stocks with differentiating factors rather than pure technology

We spoke with Rubén García Páez, general director of Iberia and Latam at Columbia Threadneedle about the exposure of technology and banks that Focus TLux Global Fund has in a time of uncertainty like the present.

– Why do you think investing in a global investment fund that prioritizes quality growth companies with competitive advantages is now a good option?
The option is important, because in a different environment where we are going into recession and the companies are stronger, they have growth and barriers compared to competitors who are going to do better. We are in a different environment and therefore you need to look at activities, teams or teams that are more solid, stronger.

– What are those competitive advantages that you recognize in the investment process?
When we shake up a team, what we’re looking for is to identify the strongest. Things change across the sector. Sometimes the differential factor can be a brand that makes it a leader in the country, in others it can be the price, that is, the price they have… Ryanair is a good example of a company that has advantages to be more competitive with some management. In other cases it may be a unique product, companies having a unique product or service that cannot be replicated. There are differentiating factors that make companies have better advantages than those in competition.

– The fund overweights technology at the moment with the first place in Microsoft, do you think that after the fall of 2012 it is necessary to believe that the firm will recover this year?
We don’t see technology as a sector, but as a disruptor of all sectors. The companies that we have in our portfolio, like Microsoft or Alphabet, are not so much bets purely because they are from the technology sector, but because we see that those companies are very solid and will have all those differentiating factors that I was before, either in price or in fact, and so they will have a lot to sustain when it comes to results.
Not so much because technology is merely an obligation of technology, but because there are very different, sustainable companies and in periods like the one we are experiencing, volatile, uncertain and possible recession, those companies are with more stable and predictable profits; the ones that I will do better.
In this case, Microsoft is a company that I like very much and that, although it is a technology company, has a certain business with the cloud issue, which makes this company predictable and sustainable in terms of profits, even in difficult times.

– Behind the technology are pharmaceutical and health companies and banks. Are you worried about the bankruptcy of Silicon Valley Bank and First Republic in the US and the problems that Credit Suisse would cause?
It is clear that we are all more anxious when, at first, the surprise of the question which inhibits the system. The reaction is very fast both in the American bank and in the last week with Credit Suisse, and it seems that there is a risk that is listed. Or at least that’s what the market is recognizing.

In our organization, where we are looking for the best 40 or 50 companies in the world, we do not have the greatest weight in financial companies or banks, why? Because we understand that general banks do not have a competitive advantage. In fact, whoever asks for a mortgage or who goes to the bank to ask for a loan, the differential factor is the price, that is, they do not have what we call pricing power, which is the possibility to sign or a partnership. set the price, have a good price. They generally don’t have banks, so I’m not going to say it’s a commodity, but it’s a complicated part.

In developed countries, such as Europe or the United States, it is difficult to differentiate, and therefore we do not see a differential advantage in these types of companies. Where do we have bank exposure? In those banks, countries or regions where banks have a differential advantage.

Specifically in India we have two positions, two banks, the first is that India’s growth at the level of incorporation of people to digitization is very high – now there are two banks that could facilitate or accelerate the possibility. the opening of the account and especially the Digitized. There are banks that are growing a lot and that have a differentiating advantage. But as a sector we are looking for them to have a differential advantage or a different product or service and not simply to be a commodity, so we see that it is difficult for banks to bet.

– In terms of geography, the second largest country is India, do you think India has more potential than China?
The construction of our fund is purely by team selection, we do not analyze the analysis of each country, but we look for those companies that do it better, regardless of the country. It so happens that the two banks we have in India, why there? Because it is a country with the highest financial growth, a large number of citizens joining the bank, it has the largest population and we see that these two banks are differentially better than the others, and so; it is a competitive advantage, which is ultimately what the manager is looking for. If India is the second country in the portfolio, it is not because we think the market or growth will be better, but because the two banks that we have in the portfolio happen to be in India. 52% of the libraries are open to us, not because we think we will do better than China, but because there are many different companies in this market.

Nation World News Desk
Nation World News Desk
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