A Compelling Go-Anywhere Approach to Growth
Seasoned leadership and a solid process make newly rated PGIM Jennison Global Opportunities stand out.
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Seasoned leadership, a strong analyst bench, and a well-executed process earn PGIM Jennison Global Opportunities' cheapest share classes a Morningstar Analyst Rating of Silver. Ratings on pricier share classes range from Bronze to Neutral.
Veteran comanagers Mark Baribeau and Tom Davis have a long shared history. They joined subadvisor Jennison Associates in 2011 to lead and advance the firm's research of foreign stocks, which had not been a focus of the traditionally U.S.-oriented shop. Previously, both had established themselves as money managers at Loomis Sayles, where their contributions were often central to the success of several domestic and global portfolios. For instance, Baribeau skillfully steered large-growth fund Loomis Sayles Growth (LSGRX) from 1999-2010 and Loomis Sayles Global Equity Opportunities from 2004-11.
This strategy is similar to but more potent than those Loomis Sayles charges. Whereas at Loomis Sayles, Baribeau built 50- to 60-stock portfolios of competitively advantage fast growers, here he and Davis have cut the number of holdings to 35 to 45. The fund is also unconstrained in its regional exposures and sector allocations, though it sticks to publicly traded companies in looking for the world's most attractive growth stories.
Few shops are better suited to run such a strategy. For more than 15 years, virtually the same stable team of growth investors has scoured the globe for companies whose competitive brawn can sustain rapid growth over multiyear horizons. Consistently good stock-picking at the firm's flagship strategy--Silver-rated PGIM Jennison Growth (PJFZX) --proves the team's talent.
Talent can't eliminate risk, though. The team routinely embraces the high price multiples commanded by rapidly growing companies, which leads to disappointment if earnings-growth expectations don't materialize. That pricey fare has contributed to the fund’s above-average volatility and increases the chance of hitting rough patches. Fundholders must be prepared for both.
Process | Above Average
The strategy earns an Above Average Process rating for skilled execution of a global version of Jennison Associates' proven growth approach.
This fund's managers are agnostic about sector and regional exposures, but stick to public markets in looking for the world's most attractive and enduring growth stories. The managers look for 35-50 market leaders with above-average top-line growth prospects. Focused on the durability of a company's growth, they favor businesses with healthy financials; strong research and development capabilities; and defensible, if not dominant, franchises.
Central to the approach is the fundamental research of the firm's talented analyst group. As sector specialists, the analysts visit companies and their executives, competitors, and suppliers and dig into balance sheets and income statements. The team has often been successful at differentiating between short-term issues it can ride out and structural challenges that will hamper a firm's long-term growth.
Three more analysts provide regional expertise, including Albert Kwok and Sara Moreno, who also manage money. Kwok focuses on Asian emerging markets--notably China--and spends a good chunk of his time in the country scrutinizing companies and industries in person. Similarly, Moreno specializes in Latin American and Eastern European markets.
The managers' commitment to high-growth, competitively advantaged firms is clear. Aggregating the fundamental characteristics of its underlying equity holdings, the September 2019 portfolio's average estimated five-year earnings-growth rate ranked among the top 2% of the world large-stock Morningstar Category. Meanwhile, 94% of equity assets were in stocks with either a wide or narrow Morningstar Economic Moat Rating. Industry giants such as Amazon.com (AMZN), Mastercard (MA), and Nike (NKE)--all wide-moat stocks--dominate the fund.
Fast growers with economic moats typically don't sell cheap, and the managers have consistently paid a premium for them. In October, the portfolio's average price/forward-earnings ratio of 40.5 put it at a premium of over 250% to the MSCI All-Country World Index's. That carries risks of disappointment if those earnings-growth expectations don't materialize.
Although unconstrained in its regional exposures and sector allocations, the fund was diversified across both in October. Firms domiciled in developed Europe represent the most significant regional overweight, with 28% of the fund's assets there, versus 19% for the index. On the other hand, the portfolio lacks any exposure to Japan and South Korea, which in recent years have constituted 8% to 10% of the index.
People | Above Average
The strategy receives an Above Average People rating because Jennison Associates' team of growth investors is better than most. Its managers are seasoned and their skill is reflected in this fund's track record and those of other charges.
Veteran comanagers Mark Baribeau and Tom Davis have a long shared history. They joined subadvisor Jennison Associates in 2011 to lead and advance the firm's research of foreign stocks, which had not been a focus of the traditionally U.S.-oriented shop. Previously, both had established themselves as money managers at Loomis Sayles, where their contributions were often central to the success of several domestic and global portfolios.
During Baribeau's time at Loomis Sayles Growth--a domestic large-growth fund he led from 1999-2010--the fund outpaced the Russell 1000 Growth Index in two thirds of the monthly rolling three-year periods. He and Davis comanaged separate account Loomis Sayles Global Equity Opportunities from 2004-11, which posted gross annualized returns far better than the MSCI ACWI's on their watch.
The analysts aren't lacking in experience, either. Eleven sector specialists boast an average of 21 years of industry experience and 15 years at Jennison. Three additional analysts provide regional expertise.
PGIM is the new name for the former Prudential Investment Management, the asset-management arm of conglomerate Prudential Financial, and its fund lineup has completed the gradual rebranding effort to the new moniker. PGIM has notable strengths, including a positive culture, and it has continued to move in the right direction. Our increasing confidence in the firm earns it a Positive Parent rating. The PGIM funds are subadvised by subsidiaries of the firm, primarily Jennison Associates, Quantitative Management Associates, PGIM Fixed Income, and PGIM Real Estate. The fixed-income team, with more than half of the firm's fund assets, is well-resourced and risk-aware, while the actively managed fundamental equity funds are run by Jennison with an established, repeatable investment process. The PGIM funds as a group have respectable long-term records. PGIM has launched a lot of new funds since 2010, about half of its 71 open-end funds (as of June 2018). That's a potential concern, but these new funds have been in areas where the firm already has significant resources. The PGIM funds are overseen by an engaged, active board. The trustees have pushed for lower fees, and the fund's expenses have been coming down, including through the recent implementation of some expense caps and reduced management fees. Manager investment in the PGIM funds has also improved.
Performance here has been good, but volatile. The Z shares' 12.8% annualized gain from its June 2012 inception through October 2019 beat the gross returns of the MSCI All-Country World Index by 3.6 percentage points and outpaced 95% of world large-stock category peers. Its built-in growth bias during a growth-fueled bull market has helped. (Out of all funds in the category with similarly long track records, none other had a higher value-growth score.) Still, peers landing in the growth column gained just 9.7%, on average, during the same period, and the MSCI All-Country World Growth Index posted a gross gain of 10.2%. The fund's volatility dulls its performance edge on a risk-adjusted basis, yet it still boasts superior Sharpe and Sortino ratios.
Against its benchmark, the fund's stock selection within China and the United States has contributed most to its excess returns over the past five years. The managers' bold bets on Alibaba (BABA) and Tencent (TCEHY) were well-timed. Shares of both Chinese titans, which have been held continuously over that time and reached 13% of assets combined in 2017, more than doubled in value during the period as the index gained about 40% cumulatively. The fund’s big stakes in Netflix (NFLX) , Amazon.com, and Mastercard have also helped. Although based in the U.S., these firms’ revenue sources are global to varying degrees.
It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s second-cheapest quintile. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.
Robby Greengold does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.