A Singular Focus On US Equities At Findlay Park Partners

Tom Burroughes

11 April 2023

Banks, investment firms and other players push out funds and a lot of marketing fanfare accompanies these launches. It therefore comes as a jolt to find a business that only runs one fund which covers one market.

UK-based , a business located in the St James’s area of central London, runs the Findlay Park American Fund, a portfolio that as of end-February 2023, had a net asset value of $10.2 billion. It is benchmarked against the Russell 1000 Net 30% Total Return Index.

“We are in a minority of firms that are focusing on trying to generate great compound returns for our clients,” Anthony Kingsley, chief investment officer, told WealthBriefing in a recent meeting. He argues that the firm can control its distribution and ensure a focus on investment. It has no outside pressure to gather assets. The private business has 14 partners, and the fund is 25 years old.

The fund has a pool of diversified professional/intermediary investors, predominantly wealth managers, private banks and advisors in the UK and Europe, who in turn each have many underlying investors.

“We have a clear investment philosophy that has guided our approach to investing since 1998,” Kingsley said. “We believe that there are so many investment opportunities in the US market; if we can control the downside risk in each investment, the result should be a portfolio capable of generating higher compound returns than the benchmark with a lower level of risk. We believe this focus on aiming to manage downside risk and generating attractive compound returns aligns with how a typical wealth manager might use the American Fund.”

“Our goal is to keep compounding at an attractive rate for investors by trying to control risk in individual securities and avoiding a permanent capital loss,” he continued.

Philosophy
The original/core philosophy was written by James Findlay, founder of the business and who ran a US fund at F&C. Kingsley and the team codified this several years ago into the 29 question checklist, Half of those questions focused on the quality of a business and its people, such as what sort of “moat” does a company have to protect its competitive position.

The firm’s fund has been able to chalk up a return of 11.8 per cent since inception, as in CAGR (source: website). In 2022, it fell 21.4 per cent as US equities tanked. The fund’s average holding period runs for four years (as at end Dec 2022). The fund is structured as an Ireland-domiciled UCITS vehicle.

Based on its February factsheet, the fund’s largest holding is Microsoft (4.6 per cent), followed by Berkshire Hathaway (3.5 per cent); EOG Resources (3.5 per cent); TopBuild (3.3 per cent); MasterCard (3.1 per cent); Intuit (3.0 per cent); Ferguson (2.9 per cent); Arthur J Gallagher (2.8 per cent); S&P Global (2.7 per cent), and Martin Marietta (2.4 per cent). These 10 largest holdings account for 31.8 per cent of the total.

The fund has a broad pool of diversified professional/intermediary investors, predominantly wealth managers, private banks and advisors in the UK and Europe, who in turn each have a large number of underlying investors, Findlay Park said.

The fund is diversified in various sectors. At present it does not own banks as a rule because they “don’t screen well.” The fund is not constrained by a market cap approach, Kingsley said.

“We are moving to more mid-cap stocks and away from some of the megacaps,” he said. (By mid-cap, the firm means companies worth between $3 billion and $50 billion.)

Eight stocks have driven about 45 per cent of the US stock market over the past 10 years (Alphabet, Amazon, Apple, Microsoft, Meta, Netflix, Nvidia and Tesla (data as of 31 January 2023, according to Findlay Park Partners, FactSet).

One of the trends that Kingsley and colleagues watch is how global supply chains are having to change, leading to a “re-shoring” of activity such as silicon chip manufacturing.