In this weekly series, investment reporter Elliot Gulliver-Needham sits down with a fund manager for a Q&A. This week, we’re hearing from Obe Ejikeme, manager of Carmignac Portfolio Human Xperience fund.
How does your fund stand out from others in the same market?
The Carmignac Human Xperience fund focusses exclusively on the importance of both the customer and employee experience. The fund focuses on economic themes that affect the many, rather than the few.
Firstly, consumption, which is one of the biggest drivers of the global economy and secondly, work and employment, which affects over three billion people worldwide.
We invest in companies based on empirical evidence that over time, they enhance shareholder value. The broader social segment of ESG thematic funds is still very much untapped with few players focusing on it.
We believe the approach we have taken stands out as we aim to be broad enough to support diversification across the portfolio.
Which of your holdings are you most excited about?
I’m of course excited by each one of 39 stocks we own in the fund, nevertheless a few are not only great companies from a financial standpoint, but also score very well in our proprietary Carmignac Human Xperience database.
L’Oreal, Costco and Hilton are all sizeable holdings in the fund and are great examples of the style of company we’re looking to invest in. L’Oreal continues to maintain customer loyalty through its strong brand portfolio, ranging from Maybelline to Lancôme, and more recently, to CeraVe, their fast-growing skincare brand.
Costco’s relentless focus on the customer experience can be seen through their membership renewal rate, which is above 90 per cent.
Hilton has similar traits, as the group offers an award-winning loyalty programme with over 150 million members which positioned it as Europe’s leading hotel brand in 2022 by the World Travel Awards.
From the employee standpoint, all are highly ranked in independent employee engagement surveys. From a macro perspective, as the world recovers from the economic impacts of Covid and as inflation abates and interest rates start to decline, they are all set to benefit from the consumer recovery ahead.
What is the biggest mistake you’ve ever made in the fund?
The fund allocation in 2022 was probably our biggest mistake. Our natural bias towards quality meant we were carrying too little “value/low quality” in the portfolio which lead to an under-performance of the fund versus its broader index.
While that style risk was well known, we probably under-appreciated the rotation risk and hence carried too much factor risk in the fund. While it has not affected our process a huge amount, today we’re a lot more conscious of which style risks/biases we may be running.
What’s one change you made in the fund recently? Why didn’t you make it sooner?
We exited our position in Puma. While we still believe there’s room for it to recover in the medium term, it was becoming a bit of a distraction and we wanted to focus our attention on other names in the apparel space, notably Adidas where we had much higher levels of conviction.
We didn’t make the decision sooner because we were expecting an earnings inflection in late 2023 based on the broader consumer recovery but this appears to have been delayed.