A bottom-up approach for uncertain times

Faced with a confounding macro environment caused by the Covid-19 pandemic, some investors are taking a micro approach.

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Murdo MacLean, client investment manager at Walter Scott in Edinburgh, Scotland, is sticking with a bottom-up investing strategy focused on buying “great businesses” and holding them for the long term.

“Companies like these exist in every corner of the world,” MacLean said in a July 16 interview.

“We don’t view countries as really adding anything to the conversation. It’s the companies themselves that interest us.”

Even as the Covid-19 recovery takes shape in many countries, the virus continues to spread in others and, in some cases, is resurfacing in regions already hit. The unpredictability makes for a challenging macro environment.

Since the pandemic hit, many investors have sought companies with strong balance sheets and enough liquidity to survive a challenging period until economic conditions return to normal.

Earlier this month, the Bank of Canada forecasted global economic growth to contract by 5.2% this year, followed by expansion of 5.2% and 5.4% for 2021 and 2022.

Two U.S. companies that MacLean likes are Texas Instruments Inc. and Illumina, Inc.

Texas Instruments has a strong position in the semiconductor manufacturing market, he said, with a strong balance sheet.

Illumina is a San Diego–based healthcare company active in gene sequencing.

“We think they are at the very cutting edge of what is an extremely exciting part of the global healthcare space,” said MacLean, who manages the CIBC Global Growth ETF and the CIBC International Equity ETF.

“As the world looks to develop drugs that are more targeted to individuals, Illumina’s products and services will be absolutely crucial.”

MacLean pointed to Japan-based robotics company FANUC Corp. and pneumatics firm SMC Corp. as “feeding into a large and growing vector of the global economy” where automation and efficiency become more important.

“Japan, as much as from a top-down view it can be cast aside, that would be a mistake for a bottom-up stock picker like us,” MacLean said. “The rewards are there if you’re willing to put in the work.”

He also noted a couple of northern European companies that are global leaders. Finnish elevator and escalator manufacturer KONE has “a very resilient business model,” with its maintenance contracts providing revenue through the pandemic.

Danish bioscience firm Chr. Hansen Holding A/S is another that MacLean likes. The company manufactures bacteria for the food and beverage industry.

“Really great niche or even large businesses can be found pretty much everywhere,” he said. “You just have to be willing to get out there and look for them.”

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