The PGIM Jennison Global Equity Opportunity strategy is growth-oriented, with a particular focus on well-defined criteria honed during the past two decades.
“We invest in companies for today, tomorrow and the future,” Tom Davis, one of three managers of the strategy, told FSA in a recent interview.
He explained that these fit into one of three categories: technological innovation, both creators and adopters; luxury brands that are at key points in their product cycles, and which are unique and whose wealthy buyers are typically insensitive to the macroeconomic environment; and longer-term trends identified in evolving forces that are disrupting and replacing existing practices across industries.
“Capital-light semiconductor manufacturers, data centres and generative AI and all their applications are major themes for the portfolio’s construction,” said Davis (main picture).
Jennison Associates is a global equities manager with $208bn in assets under management, and is an affiliate manager of PGIM, the $1.34trn global asset management business of Prudential Financial.
The Global Equity Opportunity strategy is unconstrained, and its methodology is based on bottom-up stock selection. The result is concentrated portfolio of 30-40 holdings, with the managers taking a three-year time horizon for each investment.
However, the managers do not adopt a buy-and-hold, high conviction policy. Excluding the purchase of new stocks, annual turnover is about 30%, according to Davis.
The strategy generated a gross return of 40.07% in 2023, outpacing its equity international sector average (16.94%) and its MSCI ACWI benchmark (22.20%), in sharp contrast to the disastrous year for growth strategies in 2022, when it posted a 40.28% decline, compared with -20.19% by its peers and -18.36% by its benchmark, according to FE Fundinfo data.
During the fund’s annus horribilus, the managers sold some stocks of companies whose business models were especially vulnerable to higher interest rates, and replaced them with “higher quality” names, that were cash generative and had solid balance sheets – while maintaining the focus on the strategies three guiding principles.
“But it was impossible to side-step markets which were plunging across whole sectors and categories,” said Davis.
“Besides, ours is known as growth strategy and we need to be consistent in order for third-party fund allocators to keep their faith and trust in us,” he said. “To suddenly switch investment style would be confusing and detrimental in the longer term.”
The strategy’s standout recent performance was in 2020, when it returned 72.45%, compared with 16.24% and 16.25% for the sector average and the index, respectively.
Over five years, the strategy’s cumulative return has also exceeded both measures, with a cumulative return of 81.1% return (see chart) and generating alpha of 5.15, according to FE Fundinfo.
“Success derives from fundamental analysis, rather than is contingent on macro factors, although we examine how macroeconomics or political events might affect the fundamentals of individual companies.”
Geographically, the portfolio currently has a North American tilt (about 63%), because “US tech has unmatched scale and scope, comprising very large and often unique companies,” said Davis.
However, in the past emerging markets have made up about 30% of the portfolio’s composition, while Europe has been consistent at 20-30%. “Our analysts take a truly global view,” Davis said.
