Corporate culture a key to investment success

From

Marty Switzer

Leading investment manager WCM Investment Management (WCM) has highlighted to local investors the importance of detailed corporate culture analysis when constructing global equity portfolios.

This message is consistent with the recent revelations of misconduct from the royal commission, which also emphasised the need for investors to garner greater insights into the corporate culture of organisations in which they invest.

The WCM Quality Global Growth Fund (ASX: WCMQ) has been launched as an active global equities Exchange Traded Managed Fund by Contango Asset Management via its interest in Switzer Asset Management Limited. Switzer Asset Management is also the responsible entity for the ETF.

The ETMF has already received over $10 million in allocations in its first 10 days of being open to local retail investors[1]. The initial offer closes Friday 22 August.

It has also received a Recommended rating by Lonsec, thanks largely to the quality of the underlying investment manager, the California-based WCM.

Marty Switzer, CEO of Contango Asset Management, said Contango had searched the world for an appropriate global equity offering to partner with to provide to local retail investors.

Mr Switzer says: “WCM’s investment process is based on the belief that corporate culture is the biggest influence on a company’s ability to grow its competitive advantage.

“This process has resulted in WCM’s flagship global equity portfolio consistently outperforming the MSCI World Index over the past decade and firm assets under management growing  to over A$35 billion.

“The portfolio, which typically holds between 20 and 40 securities, targets quality global growth businesses with rising returns on invested capital, superior growth prospects and low debt.”

Paul Black, co-CEO and portfolio manager at WCM, adds: “A point of difference in our investment approach is that we have developed the ability to identify companies that possess a demonstrable competitive advantage over peers. This includes corporate culture – great companies tend to have great cultures.

“Culture is difficult to measure, given its qualitative rather than quantitative nature.  It is for this reason that culture often gets overlooked in the investment process. We put a lot of emphasis on understanding the corporate culture of our holdings.”

Mr Black highlights that WCM has an analyst dedicated to probe the cultures of companies in which they invest and monitor and have developed a proprietary methodology for assessing this highly subjective element of an investment. This is a key focus of the team when meeting with company management, employees and even former employees.

He notes that an organisation could have the greatest products, a robust brand and reputation, effective policies and processes and a long history of trading, but if the culture is poor it is much less likely to succeed when compared with a business with a healthy one.

“Despite those good products, you might find that many customers have complained about slow delivery, or poor service, or rude employees. These are all indicators of the health of a company’s culture.

“In contrast, companies with great service and employees that go the extra mile rarely have complaints made against them. And if they are not making complaints, then customers will return to the better businesses, leading of course to better business results. It’s that simple.”

Mr Black says assessment techniques WCM uses includes face-to-face meetings with management, employees and even former employees; turnover rates, net promoter scores (NPS), online reviews and more.

Mr Switzer adds: “The WCM Quality Global Growth Fund ETF offering is consistent with Contango’s new strategic direction as a marketing and distribution platform that partners with, and promotes, the best of breed global brands to the self-directed and independent financial adviser channels.”

[1] WCM has been available to local institutional investors for the past five years.

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