The portfolio is a repositioning of the Pictet-Small Cap Europe fund and is managed by Cyril Benier and Alain Caffort.
In this Q&A, they discuss the strategy’s guiding philosophy.
There’s a large body of research showing family businesses tend to outperform their peers – financially and in terms of shareholder returns.
Of course, as anyone with experience of families and family disputes knows, this type of ownership can also lead to a number of problems – which is why it is also crucial to take an active approach to investing in these companies. And that’s where we can make a difference – ensuring we avoid the pitfalls in this otherwise attractive investment landscape. Please read our related article on the universe for more about why it makes sense to invest in family businesses with an active approach.
Environmental, social and governance (ESG) factors are all important sources of investment performance. But when it comes to investing in family businesses, governance is key. That’s because governance is intrinsic to a company’s overall values and culture.
We use several bespoke indicators in order to draw out what’s acceptable and what isn’t. For example, we tolerate a lower degree of board independence from family companies – after all, the close alignment between the family’s and business’ fortunes is one of the reasons these companies do so well – but we’re much more stringent on the composition and approach of the company’s audit, remuneration and nomination committees.
We look for high quality businesses with strong revenue growth and balance sheets that are well managed and leaders in their sectors.
Not in a way that narrows our investment options. Family companies operate across all sectors and industries. And we have a more balanced regional distribution than capitalisation-weighted global equity indices – for instance, 59 per cent of the MSCI All Country Index is based in North America, while our weighting is around 44 per cent.
But it is true we prefer some sectors to others. For example, Consumer Discretionary companies make up around 11 per cent of the MSCI ACWI but have nearly twice the weighting in our portfolio. And the majority of these companies are based in Europe, including some of the great luxury goods companies.
We’re also relatively heavily weighted towards Communication Services and Consumer Staples. By contrast Energy makes up more than 5 per cent of the MSCI ACWI but less than 2 per cent of our holdings.
Pictet-Family brings together the core capabilities of the Pictet group: Family businesses, Global funds, identification of winning market themes and a strong focus on ESG factors.
We know what the drivers of a successful family business are and what characteristics of a family business we are looking for. After all, we have a strong case study right at home: Pictet is a family business and a very successful one.
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