UBP Swiss equities portfolio manager Eleanor Taylor Jolidon has told Citywire Switzerland that she believes paying attention to cash flow return on investment (CFROI) is the key to careful company selection – even when the headlines surrounding a firm might not be so positive.
The Citywire A-rated manager said that a company's CFROI levels is a good indicator when it comes to predicting whether a firm will be able to create value for investors.
For example, she said: ‘We have been holding Partners Group in the portfolio since it came to the market. We also favour Leonteq and Lonza, as we have seen a clear operational improvement.’
However, with Sika – a specialist chemical company for building and motor vehicle supplies – things were more complicated, as the company has been caught up in an acquisition battle for the past three years.
Taylor Jolidon said: ‘Despite its legal position, we decided that it was not detracting from the returns, so we re-entered the stock.’
The portfolio manager also explained that difficult timing decions have sometimes resulted in less successful calls, such as with Zurich Insurance and travel retailer Dufry.
Beyond the border
According to Taylor Jolidon, a young company normally goes through a period of high growth and development costs, creating weak levels of CFROI, which are then bound to rise once the firm’s revenues increase. Straumann and AMS are among the companies presenting interesting CFROI growth in Switzerland, she suggested.
However, Taylor Jolidon – whose team meets with around 500 companies a year – stresses the importance of looking beyond the national borders.
‘As we are familiar with the global suppliers, competitors and customers, we are able to compare each company with its international peers and evaluate them in a more complete way,’ she said.
Having joined the team in 2008, Taylor Jolidon currently manages the UBAM (CH) Swiss Small and Mid Cap Equity A fund, the UBAM Swiss Small and Mid Cap Equity AC CHF Cap fund and the UBAM Swiss Equity AC CHF fund.