Loomis Sayles’ Aziz Hamzaogullari has invested in two large, mispriced companies in order to capitalise on their long-term potential and quality.
Hamzaogullari said he has built two holdings in fast-food company Yum! Brands and Danish pharmaceutical giant Novo Nordisk over the first quarter of 2014.
This saw the manager tell Citywire Global he had taken 2% positions in both of the stocks in his $495 million Natixis Action US Growth fund.
‘Yum! Brands own KFC, Pizza Hut and Taco Bell. They have their biggest exposure to China and boasts a very strong cash flow generation,’ he said. Hamzaogullari said it’s very difficult to replicate this kind of business model.
‘Yum! Brands’ management has a long-term vision which targets fast-growing markets. The company also trades at an attractive valuation due to some issues it had with the quality of the supply chain.’
To some extent, the pharmaceutical firm Novo Nordisk is a similar story to Yum! Brands, he said. ‘They are one of the few leaders in the diabetes' treatment market. More and more people are suffering from this disease.’
The company, according to Hamzaogullari, has a true long-term view. ‘The management works with a 10-year perspective and is very experienced.’
Facebook vs Apple
Hamzaogullari is still convinced that Apple, a company he previously discussed as unattractive, is too dependent on a fast-changing consumer taste, and he prefers businesses which are more difficult to replicate, such as Facebook (5.8% of the portfolio).
‘Facebook is not simply a prominent brand. It has a unique reach, which is massively used by advertising companies. It also benefits from its huge scale,’ he said.
Amazon (5.1%) is another example of the type of companies the manager likes. ‘Having a better cost structure than traditional retailers, Amazon offers the same products at a lower price. It also has a larger selection and a very convenient shopping model.’
A private equity approach
The most important trait of Hamzaogullari’s investment process is a long-term view which characterises all his choices. ‘We like to say that we invest in businesses rather than trading in stocks. We take advantage of short-termism while harnessing anticipated, sustainable growth,’ he said.
Two good examples of this approach are the American multinational Cisco (5.5%) and the financial services corporation Visa (4.3%). ‘Cisco’s growth is slightly lower than Facebook and Amazon. But the company has a strong brand and a forward-looking management,’ he said.
According to Hamzaogullari, Visa has a huge, increasing market share and a very innovative management team.
‘Two thirds of all transaction in the US are made with a debit or credit card. Visa’s value chain, including all the relationships built with financial institutions, is very difficult to replicate.’
Over the three years to the end of August 2014, the Natixis Actions US Growth fund returned 66.86%, nine percentage points less than the S&P 500 TR index over the same timeframe.