Hear from Randal Jenneke, Head of Australian Equities
Randall Jenneke: T Rowe Price is one of the largest independent asset management firms globally. We are listed in the US, staff own approximately 20% of the firm. We operate in 12 offices around the world including Sydney, where the Australian equity team is based.
We are an investment led firm which means we're quite conservative in terms of how we run our business, we think long term and we always act in the best interests of our clients. As a firm we're globally integrated, and what that means is that across our research, portfolio management and dealing we work together to achieve the most informed and best possible investment decisions for our clients.
Being part of a globally integrated firm means that we can access information and insights from our colleagues around the world to be better informed. It also means that as a large global investor we can access pretty much any company around the world, at a senior management level, in a way that our local competitors can't. And I think what it also means is that we bring a more global broader perspective to trends and issues that we can spot in overseas markets, and then quickly capitalise on those opportunities and trends as they flow through the domestic market here.
We spend a lot of time analysing companies, we want to understand the industries, want to understand what drives the industries and the companies and what are the unique factors that drive the company and why they generate the profitability that they do.
And what that all goes to really do is to focus on the quality of the business for us, and we define quality around two key parameters. One is the returns a company is able to generate and second is the growth potential of a business. And we put this into what we call our Business Quality Assessment framework. So defining companies around those two key parameters around returns and around growth what we're doing is we are ranking or scoring the entire investment universe to determine the quality of a business in the Australian market, which we rank from high too low.
As a quality growth investor we look to invest in the highest quality part of the market place, but obviously we want to find quality when it's cheap and own quality when it's cheap as well. So we have an A to F ranking system if you like, or categorisation. A quality companies for us are the highest rated quality businesses so they are companies that generate strong returns, well above their cost of capital, and the businesses which are growing as well. We also need to know what we don't like which are low quality companies, because we don't want to own those. So F rated companies are the lowest quality businesses and they are companies that generate very low returns, below their cost of capital, and these companies want to grow quickly, and that's a bad combination because what happens there is that you destroy your value very quickly, so we don't want to own those companies.
We will own companies that at a minimum earn their cost of capital, through a cycle looking at three to five years, so they are D rated companies, so we own A through to D rated businesses within our portfolio.
Firstly I think that we have a very experienced team, and I think that that's very important. I mean we are big believers in deep sector research and deep experience. And when you think about it over the last 20 years we've been confronted with a whole range of different business cycles and different events. I mean I can think of you know going back to you know the Asian Financial Crisis back in mid 90s, and then we had a tech bubble, then we had a credit bubble, we had a commodity super cycle, we've just had a GFC. Our investment team has invested throughout all of those events, we have deep sector experience and deep market knowledge as well.
Just – just as importantly also is that we have a diverse background in terms of the members of the team, and I think that's very important because one of the critical things to avoid in the investment management business is to avoid group think, and the way that we do that is by having people who come from different backgrounds. So we have a consultant within our team. We've got a geologist within our team, we've got a chartered accountant, we've got an engineering degree qualified member as well, so everyone's different in terms of their background, and I think that's very important to tap into that different way of thinking to avoid group think.
It also brings a lot of different relationships and contacts as well to you know how we can tap into various industry information to help us get to the best possible decision we can. There are three key factors why investors should consider T Rowe Price. One is our team, second is our investment process and third is the global integrated nature of our firm.
In terms of our team we have a deep experienced team that's invested through many different business cycles and have diverse backgrounds and different ways of thinking. In terms of our investment process we have a very rigorous investment process that really tries to identify the quality of the business, and quality is a key factor that leads to performance over time. And thirdly in terms of our firm, we bring to bear the resources of T Rowe Price globally, we access information inside so you can open doors in a way that our competitors can't.
2014-GL-488
