Roberto Magnatantini explains to Gill Newton why all his holdings are exposed to the aging population theme, how ESG is integrated into investment approaches and which companies have ‘outstanding’ IR
Roberto Magnatantini, Decalia
Founded in 2014 and headquartered in Geneva, Decalia is a fast-growing independent investment management company, managing private and institutional assets. As of December 2021, it has CHF4.9 bn ($5.1 bn) in assets under management and more than 70 employees focusing on three activities: wealth management, asset management and private markets.
Roberto Magnatantini joined Decalia in 2020. He is lead portfolio manager of the Decalia Silver Generation and Decalia Eternity funds. Before joining the firm, he was head of global equities at Syz Asset Management, where he spent 12 years managing two strategies for the Oyster funds franchise. Before that, he worked for four years at Lombard Odier and four years at HSBC where he managed equity funds. He is a certified financial analyst and chartered market technician and holds an ESG certification from PRI.
Gill Newton
How does Decalia fit into the Geneva-based investment community? Decalia is ranked among the Top 50 independent asset managers in Switzerland by Citywire. The firm is also a board member of the Alliance of Swiss Wealth Managers, which unifies the largest wealth managers in Switzerland. You are a team of 12 fund managers – do you split sectors and geographies? At Decalia, all portfolio managers have a double expertise: investment manager and equity analyst. We are all seasoned fund managers so know the sectors and regions we cover but in addition, for example, I tend to focus on healthcare and consumer. We try to meet all companies in which we are invested, and then all investment ideas are discussed by the entire team during the weekly team meeting or on a less formal basis if needed.
For example, if I met Danaher, I would provide my colleagues with feedback after the meeting.
How is ESG integrated into your investment approach? The investment team is supported by three ESG analysts with a sector focus for each analyst: industrials & clean tech, healthcare and consumer. In terms of external providers, we mostly use MSCI. If MSCI ranks a company CCC, it is ‘untouchable’. But we regularly question MSCI ratings if we think the rating does not entirely reflect the company’s credentials. Mid-caps, for example, are often less transparent in terms of ESG and this can negatively affect their ranking.
Do you vote your proxy for US and European stocks? We work with ISS to outsource the first step and then our ESG analysts review the ISS proposal. In most cases, we align with ISS.
We regularly question MSCI ratings if we think the rating does not entirely reflect the company’s credentials
What screens do you use, given that you look for quality growth? We believe the proof is in the pudding, so we like to see that over the long term – 10 years – a company has generated value. UnitedHealth, which we’ve held for a long time, is a good example as the stock price has outperformed with low volatility, reflecting its strong compounding characteristics.
We also focus on return on capital employed – how a company has invested and the returns it has provided. A caveat is that companies with a moat that are high quality and have a competitive advantage can be pricey. So we also look for deep value and recovery plays (or fallen angels) – we look for catalysts for the companies such as margin improvement and/or recovering market share, for example.
Any sectors you can’t invest in? Yes: tobacco, nuclear, controversial weapons – across all funds. Gambling for some funds, too. Companies with a CCC MSCI ESG rating. My fund is focused on the demographics of an aging population, which not only addresses the increasing consumption of older people but also fighting aging itself, so companies that have nothing to do with my theme are off limits. To give an example, even if I were convinced that Snap might be a good stock, I would not invest in order to maintain my thematic purity.
Do you have a minimum market cap? Yes, $500 mn at a screening level but it’s rare to have something below $1 bn. We also look for a minimum of $1 mn of liquidity per day.
What is the average length of holding? Two to three years, though this year it will be shorter. We repositioned the portfolio at the start of the year as we were excessively exposed to growth stocks and have now adjusted this tilt, given our more muted market scenario.
Air Liquide, AstraZeneca, ING, Nestlé, Novartis, Novo Nordisk, Roche, Sanofi, Swiss Life and UnitedHealth Group are the largest holdings in the Silver Generation Fund. Why Sanofi and UnitedHealth in particular? Sanofi is an interesting case as the company has long been regarded as a dull player, with a relatively old small-molecule [drugs] portfolio, not a lot of growth nor an exciting pipeline.
Our analysis is that this has changed, helped by a few smart acquisitions. Sanofi has positioned itself with better and more innovation, such as mRNA technologies. This was initially under-appreciated by the market, so Sanofi was cheap. It also has a promising portfolio in the field of immunology. Now the stock has been rerated and, by my numbers, half of it has already happened but there’s more to come.
UnitedHealth Group (UHG) is my only US holding in what is a European fund. There is nothing equivalent in Europe, the rest of the world or arguably even in the US.
UHG is the largest health insurer in the US and has a unique position: it has 50 mn insured individuals and can leverage the data to which it gets prime access. It has Optum Health and hospitals, it employs doctors and has an IT side, which is extremely valuable.
It also has the pharmacy, which is often seen as ancillary and relatively low added value, but it is good for controlling cost and better understanding the market’s dynamics. Costs in the US healthcare system are exorbitant and reining them in is a political priority.
UHG can help due to its understanding of the space and its vertical integration, so it really has a unique value proposition.
I like buybacks if they are done well and don’t damage the balance sheet
The largest holdings in Decalia Eternity are Apple, Cadence Design Systems, Charles Schwab, Dollar General, Eli Lilly, Met Life, Molina Healthcare, Nestlé, Steris and UnitedHealth. Why do you hold Charles Schwab, Dollar General and Steris especially? The trend for 401Ks to move into the private sector is beneficial to Charles Schwab, which is extremely good at innovating. Financial services is one of the sectors most at risk of disruption and Charles Schwab is a leader in innovation in, for example, zero-fee trading or robo-advisory. It also has a very wide asset base: $7 tn in assets, which is huge.
It can still monetize assets such as rising interest rates or third-party products that currently don’t pay fees to Schwab. It’s a company that is very good at owning the relationship with the client – and client satisfaction is high. The stock is relatively cheap, and the firm has de-rated over the last nine months so today it offers decent value.
Steris is very well exposed to two major growth drivers in healthcare. One is standards for safety and sterilization becoming increasingly subject to more stringent regulation. The other is widening demand – and it’s not just from hospitals. There are more ambulatory surgeries, points of care, and so on.
Steris is also smart when it comes to acquisitions, such as Cantel, and I like firms that do pragmatic and value-creating M&A. It has a strong commitment to its core business, and can grow through bolt-on acquisitions.
Dollar General has one of the most impressive management teams I’ve met. It is very good at adding new categories, providing value for money and gaining a proximity advantage. It focuses on rural regions and is smart about going for less glamorous areas. Its competitive advantage is that it has strong relationships with its customers because it is more essential to them. It is good at adding new categories such as non-consumables and fresh produce, adding healthcare drugs but also reshuffling the shops.
It has executed extremely well, and competition doesn’t seem to be an issue. But the valuation of the stock is on the rich side so we are likely to take a little bit of profit rather than add at this stage, though we will still hold.
Today, the level of professionalism within IR is generally high; poor IR is an exception
What’s your benchmark and performance to date? MSCI Europe (Silver Generation) and MSCI ACWI (Eternity). The Silver Generation Fund did very well last year but has lagged year to date due to its growth style. But it’s still ahead of competition since I took it over.
What’s your active share? I took over the Silver Generation fund in December 2020 and it now has around 75 percent active share
This is down from around 90 percent because we increased large caps such as Sanofi, Novartis and AstraZeneca and also sold positions such as Genmab, Tecan and Evotec.
Eternity has around 90 percent active share but it is obviously easier to have a higher active share in a global fund than a regional one.
Do you prefer buybacks or dividends? There are pros and cons for both. I like the discipline of dividends for mature companies but there’s a risk that a company prioritizes dividends over investing in the business.
To optimize capital allocation, buybacks are a no-brainer but sometimes there is a degree of financial engineering. I like buybacks if they are done well and don’t damage the balance sheet as I like their opportunistic and flexible approach. A mixture of both is probably best.
Do you have to meet management before you buy a stock? I like to meet management but there’s often not a lot of value in meeting mega-cap names. Meeting smaller-cap names does add more value, I think.
What is your preferred method of meeting management: virtual, in person, conferences, one-on-ones? Conferences and group meetings are useful for discovering new companies/ones we don’t know well. If it is a holding or a company we know well, we prefer a one-on-one.
Are there any companies that stand out as particularly good at IR? Today, the level of professionalism within IR is generally high; poor IR is an exception. Obvious outstanding companies within the pharma sector are the Scandinavian and Swiss companies such as Novo Nordisk and Roche. In the US, Danaher is also very good at communicating.
What about Swiss secrecy regarding shareholdings? The Swiss have secrecy in their DNA. I’m all for being more transparent –I will always say if I’m a holder or not but if the policy is against disclosing, I abide by it.
Any tips for companies about how they should communicate with Decalia? We are long term so don’t want to focus on the quarter. US companies are often a little too short term for us. A good example is Novo Nordisk as it communicates well on short-term information for those who want it, but also gives long-term guidance about where the strategy will drive the firm. We want to hear about long-term targets and how they will be achieved.
Gill Newton is a partner at Phoenix IR, an independent investor relations consulting firm that also operates Corporate Access Network
