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Fund Favourites – Michalis Fessas

The Morgan Stanley Global Brands Fund has generated double the returns of its benchmark over the past eight years, and with lower volatility. So little wonder this is the favourite fund of Michalis Fessas, head of fund selection at Eurobank Asset Management in Greece, ever since he joined the bank’s fund selection team in 2009.


PA Europe

The Morgan Stanley Global Brands Fund has one of the longest track records in the investment industry, spanning more than 15 years and dating back all the way to October 2000. While it has consistently outperformed its official benchmark, the MSCI World, over that period, the fund has had a significant overweight to consumer staples stocks throughout its life. Since the current management took over in June 2009, the fund has generated a total return of 190%, compared to 142% for the MSCI World, but 220% for the MSCI World Consumer Staples Index.  

Fessas concedes the current allocation of 55.47% to consumer staples is a “very large overweight”. “The historically high exposure to consumer staples is a bias we do recognize,” he says. But the fund’s management is not engaging in a sector bet here. Instead, it’s the fund’s bottom-up stock picking process that leads to a high exposure to the consumer staples sector, Fessas asserts.

“The management team is looking for companies with sustainable balance sheets, strong brand names and shareholder-friendly management, which invest their earnings rather than make strategic acquisitions. This sort of companies often happen to be in the consumer staples sector.” To make a long story short: global brands often happen to be consumer staple companies.

However, it is of course imaginable that at some point in time consumer staples fall out of favour. “At the moment the management team still prefers companies in this sector, but we are confident they will change their allocation away from this sector if their investment process dictates them to do so,” Fessas believes.

Besides, he adds, Morgan Stanley Global Brands actually only owns a very limited number of consumer staples stocks, despite its high weighting to this sector. The fund only owns a small amount of the 97 companies represented in the iShares Global Consumer Staples ETF.

This is because the fund has a very concentrated, high-conviction portfolio of just 27 stocks, which earns points with Fessas. “Because the fund is so concentrated, it can be more volatile, especially during earnings announcement periods. But in general, it protects against downturns. In such periods the fund’s sector bias has worked very well. In 2011, the fund generated a positive return of 8.2% while the MSCI world was negative during the same period.”

Hard close

Eurobank selected the Morgan Stanley Global Brands Fund in 2008, when it adopted open architecture. This is just a little bit longer than most of the current management have been managing the fund. Four of the seven people on the team have been involved in the fund’s management since June 2009.

“I like the team,” says Fessas. “It is stable and hasn’t undergone big changes for a long time.” But what really won the Greek’s sympathy is the (temporary) hard closure that was imposed a few years ago, even though it meant the fund had to be removed from Eurobank’s discretionary portfolios. “It was important for us, as it showed commitment to their investors.”