The investment partnership – born out of a family office with origins in Europe, and now reaching to the US – recently gave an update on its investment strategy, explaining why it holds some "Magnificent Seven" big tech firms, its affection for innovative firms tapping long-term trends, and more.

“Don't worry about a thing,
'Cause every little thing is gonna be alright.
Singin', "Don't worry about a thing,
'Cause every little thing is gonna be alright!"

Bob Marley.

The lyrics famously sung by the great singer, songwriter and guitarist sprang to mind when investment partnership J Stern & Co explained why the firm is optimistic about holding certain types of investment.

Christopher Rossbach, chief investment officer of the business, has been spelling out the organisation’s money-making philosophy recently. In business presentations and in a recent gathering with journalists (attended by your correspondent), he is determined, he says, to peer through the fog of daily controversies and geopolitics to focus on holding quality businesses that innovate.

“Ultimately we think things will be okay,” Rossbach said. 

The World Stars Global Equity strategy, which Rossbach manages, holds a portfolio typically of between 20 and 30 companies, for between five to 10 years – longer in some cases. (The fund based on the strategy, which was launched in April 2019, is structured as a Luxembourg UCITS and denominated in dollars, sterling, euros, and Swiss francs.) The strategy’s holdings have a forecast price-earnings ratio for 2024 of 29.3 times earnings. There is an average five-year turnover of 9.6 per cent. Over the past decade, the portfolio has achieved a compound annual growth rate of 12 per cent, placing it in the top 10 per cent of comparable funds, Rossbach said.

Rossbach defines quality in a particular way – the ability to grow; high-calibre management with a track record of creating value; the ability to generate cash; and the capacity to deploy capital intelligently.

And that means that if a company that ticks these boxes also comes with a high price-earnings ratio – such as a PE of 30-40 times forward earnings – that’s not a deal-breaker. J Stern & Co does not use PE metrics to create red lines for investment, Rossbach told WealthBriefing when asked about the PE issue.

A focus on long-term growth is why Rossbach said he was not particularly concerned by recent “challenging” financial results (third quarter) of France-headquartered luxury goods group LVMH, for example. In fact, at a time when some fund managers like to regularly discuss concerns about large-cap dominance of indices, the portfolio holds a notably large number of them.

The top stock, at 8.5 per cent (source: 30 September factsheet) is chipmaker Nvidia, followed by Meta Platforms (5.6 per cent); Amazon (5.3 per cent); Eaton (power) (5.1 per cent); Alphabet (4.6 per cent); ASML (semiconductors) (4.0 per cent); Mastercard (4.0 per cent); LVMH (3.9 per cent); Alcon (3.7 per cent); and Amphenol (electronics, fibre optics) (3.5 per cent). 

Those sectors that fall into the “digital transformation” bracket account for the largest single slice of the total, at 40.9 per cent, followed by industrials and infrastructure, at 22.1 per cent.

Another takeaway from Rossbach’s explanation of the strategy is that he’s an advocate of active asset management. “You need a hand on the tiller,” he said. 

And talk of active management raised the question about what can be learned from renowned value investor, Warren Buffett. Rossbach reflected on the ‘Sage of Omaha’ and his sale of about half of the Berkshire Hathaway stake in Apple, a decision showing how important it is to be decisive in taking a profit when the time appears right.

This news service asked Rossbach about the strategy’s relatively small holdings of financials (4 per cent of the total, Mastercard being the position) and banks. “A problem,” he replied, is that banks’ holdings are opaque and hard to value: “We’ve no idea of what their assets or liabilities are – all we know is they need more equity to support them.” Given considerations such as the US-backed rescue last spring of Silicon Valley Bank and First Republic, this highlighted the fact that banks are, in some senses, public utilities, and had to be valued accordingly, he said.

At a recent presentation, Rossbach summed up his approach.

“Our optimism is not to be mistaken for complacency or a disregard for the very real challenges that lie ahead. We are deeply aware of the pressing issues confronting the global economy, from geopolitical tensions, political uncertainty and environmental crises to mounting levels of indebtedness, inflation, and the shifting landscape of interest rates.

“These challenges create a complex and turbulent backdrop for investors, and they are certainly not to be underestimated. Yet, we maintain our belief that navigating such adversity requires a steadfast focus on quality. Quality companies are the bedrock of resilient investment portfolios, able to thrive amid uncertainty by continually evolving, innovating, and delivering solutions at scale.

“The companies we invest in are not just surviving in today’s environment – they are leading the way forward. These businesses are at the forefront of addressing many of the most critical challenges we face. They are involved in developing new technologies, optimising processes, and creating products and services that enhance productivity and quality of life,” Rossbach said.

History
The organisation oversees assets for the 200-year-old Stern dynasty, with 20 per cent of assets in the World Stars Global Equity strategy from the Stern family and its partners. It traces its origins to a wine merchant family which transformed its business into a bank in 1805 on the counsel of their neighbours, the Rothschild family, who had gone through that transition a few years earlier (coincidentally, the same year that Swiss private bank Pictet was founded). The family flourished, operating across Europe. During the Second World War, the French branch of the family represented by J Stern & Co fled to New York in 1940.  

Whilst in New York, Maurice Stern created an investment strategy of long-term quality stock picking. In 1946, he returned to Paris to rebuild the banking business in Europe, including an asset management business. After being run for two generations, the business, called Banque Stern, was sold in 1988 to Swiss Bank Corporation (now known as UBS). The family created a family office in Geneva for the Stern family. J Stern & Co founded in London in 2012, builds on that legacy. Today, it has offices in London (2012), Zurich (2014), New York (2023) and Malta (2021).