This week, we speak with Matthew Benkendorf, CIO of Vontobel’s Quality Growth boutique, managing about $35 billion. (Note he replaced prior MiB guest Rajiv Jain as CIO). Vontobel manages $279 billion (6/30/19) and has 2,000 employees.
He grew up on a farm in New Jersey, which he suggests is why he has such a bottoms up approach to looking at stocks based on their underlying business value creation. (Farming is a very challenging business, and to stay afloat, everything gets looked at on a cost/benefit basis).
He begins with a quant screen to identify the companies with characteristics he wants to eliminate from his portfolio. This reduces risk by jettisoning companies that are average or worse. Returns on invested capital and strength of balance sheet are key ways to find and stay away from those firms. Businesses that have been great and whose core numbers are clean and consistent also improve the probabilities of future success.
We also discuss the idea of “High Conviction” investing: After the negative screen, he takes a two step approach to identify firms for his smaller, concentrated portfolio. He wants to simultaneously own companies that will survive regular market and economic downturns; and second, he wants to own more of fewer — but better — companies. Avoiding “over-diversification” is key if you want to have a chance to beat the market, and avoid the “closet indexer” mark.
Benkendorf’s large portfolio positions are in companies that he believes are “inherently better businesses.” These portfolio companies are all “more stable, and predictable, higher economic return businesses with better cash flows.” This should result in an approach that ends up being lower risk. Another virtue of this approach: His holdings are “benchmark agnostic.” This helps to deliver alpha and differentiates this approach from his peers.
You can stream/download the full conversation, including the podcast extras on Apple iTunes, Overcast, Spotify, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.
Next week, we speak with Safa Bahcall, member of President Obama’s council of science advisors, and author of the book, “Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries.”
Matt Benkendorf Favorite Books
FDR by Jean Edward Smith
Alexander Hamilton by Ron Chernow
Steve Jobs by Walter Isaacson
Books Barry mentioned
A World Lit Only by Fire: The Medieval Mind and the Renaissance: Portrait of an Age by William Manchester