Jennings restructures Morley's Privilege Portfolio Global Themes Fund

Article date: 18 June 2002

Morley Fund Management's ("Morley's") Michael Jennings has takenover management of the Privilege Portfolio Global Themes Fund witheffect from 9 April 2002. Since then, Jennings, who joined Morleyin October 2001, has been restructuring the fund to concentrate ona focused portfolio of around 70 high quality stocks, away from theconstraints of traditional benchmarking used by other global equityfunds.

Key features of the restructured Privilege Portfolio GlobalThemes Fund include:

  • Truly global: Jennings believes that the country in which acompany is located and the sector in which it operates areirrelevant to the investment decision-making process. He arguesthat many companies derive a substantial part of their profitsfrom outside their home market. As an example, Nokia dominates theFinnish stockmarket, accounting for approximately 50% of thevalue, yet in 2000, less than 2% of Nokia's turnover derived fromFinland (source: Bloomberg International).
  • Genuinely themed: The Privilege Portfolio Global Themes Fundinvests in stocks that represent or benefit from a major globaltrend or set of characteristics. The fund does not focus on anysingle sector or industry.
  • Actively managed: Unlike traditional global equity funds, theGlobal Themes Fund is not constructed around a predeterminedbenchmark, but according to major themes. The definition of aTheme according to Jennings is: "a major global trend or set ofcharacteristics which are expected to lead to enhanced long-termequity outperformance."

The four themes currently favoured by Jennings are:

  • Mis-allocation of Capital: Many core industries - power,roads, transport - have been under-funded in recent years, as 'neweconomy' stocks became the focus of stockmarket activity.Companies with the requisite size and ability to meet reneweddemand in these key industries are well placed to benefit fromincreased allocation of capital. Prime sectors include powergeneration and utilities, oil exploration and supply, defence,building and construction (housing, schools and hospitals), roadand rail networks.
  • Competitive Advantage: With no geographical bias, and norequirement to match the performance of any particular stockmarketindex, the Fund Manager is free to select companies withsustainable competitive advantage, anywhere in the world. Thesemight be companies with strong management; low production costs;innovative research and design; high quality products; or thoseutilising new technologies to enhance profitability.
  • Restructuring: Whether at a corporate, industrial or nationallevel, restructuring is likely to be a driving theme in equitymarkets over the coming years, fuelled by weak economic conditionsand tough global competition. Those companies with the strength ofmanagement to tackle inefficiencies and focus upon a quality corebusiness may add substantial shareholder value.
  • The Disinflationary World: In this era of low inflation, lowprices, and deregulation, corporate profits and margins have comeunder increasing pressure. The fund manager will look forcompanies that offer sustainable earnings growth through marketdominance; strong brands; patent protection and successfulexploitation of a niche market.

Jennings explains his choice of themes: "In a world where therate of price increases is declining, the companies that canwithstand pressure to cut prices will be favoured. These willinclude companies facing limited competition, those with a strongbrand name, or those whose products are in demand whatever theprevailing economic climate. In industries that have suffered fromlack of Government funding, such as education or the transportsystem in the UK, the dominant companies in these sectors arelikely to benefit substantially from the effects of there-allocation of capital. In an increasingly global market place,the companies with distinct competitive advantage are set todominate their industries and achieve a re-rating as a result. Asan example, Citibank, a market leader in the banking sector isrunning away from the pack in terms of margins. Finally, therestructuring theme will target beneficiaries of restructuring on anational, industrial, or corporate basis that are able, as aresult, to boost their efficiency and/or change their businessmodel to accommodate an increasingly tough global economicenvironment."

Jennings joined Morley from Sarasin Investment Management, wherehe pioneered the themed approach to managing global equities.Jennings spent 13 years at Sarasin, where the funds that he managedwere awarded AAA ratings by Standard and Poor's Fund Servicesbetween 1999 and 2001.


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Notes to Editors:

  • The value of an investment in the Privilege Portfolio fundscan fall as well as rise. The investor may not get back theoriginal amount invested.
  • The information contained within this document should not beconstrued as a recommendation to purchase or sell stocks.
  • Privilege Portfolio is the Luxembourg domiciled investmentfund of the CGNU Group with 28 sub-funds ranging from lower riskmoney market and bond funds through international and regionalequity funds to more speculative single country and themefunds.
  • Morley Fund Management Limited is the Investment Adviser toPrivilege Portfolio and is a member of the Norwich Union MarketingGroup, members of which are regulated in the UK by the FinancialServices Authority for life assurance, pensions and investments.Morley Fund Management Limited is a CGNU Group company.
  • CGNU plc is the UK's largest insurance group, one of thetop-five insurers in Europe and has substantial positions in othermarkets around the world. CGNU is the world's seventh- largestinsurer based on gross worldwide premiums.
  • CGNU's principal business activities are long-term savings,fund management and general insurance, with worldwide premiumincome and investment sales from ongoing business of more than £28billion, and over £200 billion in assets under management at 31December 2001.

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