The investment year 2024 has proven to be a successful one for investors in global equities. The Morningstar Global TME Index closed the year with an impressive gain of 25 percent.
American equities dominated this strong market performance, with the largest companies driving the gains, led by AI champion Nvidia. European equity investors, however, had a significantly tougher year, as their annual return of 8.6 percent paled in comparison to American “exceptionalism.” Value stocks faced challenges, and small-cap investors also struggled during the year.
Against this backdrop, we examine two investment funds within the Morningstar Global Equity Large-Cap Blend category, both of which are subject to qualitative analysis by Morningstar analysts. We will highlight their similarities and differences: Robeco QI Global Conservative Equities versus Veritas Global Focus Fund.
People
The investment teams at Robeco and Veritas stand out due to their strong team structures, earning both funds a People Pillar Rating of High.
Robeco’s quantitative strategies are managed by an experienced group of six managers led by Pim van Vliet, supported by a large team of over twelve quantitative analysts. This team excels in (academic) research and innovation, where improvements to their systematic investment process are carefully tested and implemented. Low staff turnover, complementary skills among team members, and continuous development of young talent make Robeco’s quantitative team one of the most reputable players in the field.
Veritas adopts a more traditional, fundamental approach and has been led by Andrew Headly since the fund’s inception in 2003. He works alongside Mike Moore and Ian Clark, who joined as managers in 2020 and 2023, respectively. The trio is deeply committed to their investment philosophy, dedicating most of their time to conducting thorough and patient fundamental research, in close collaboration with their nine analysts. This team, which includes both sector specialists and generalists, has grown over the years, with talented analysts joining a stable core.
Process
Robeco and Veritas employ investment processes that are both thoughtful and effective, yet distinctly different. Robeco earns a Process Pillar Rating of Above Average, while Veritas is rated High.
Robeco’s strategy is systematic and quantitative, rooted in academic research. The fully rules-driven strategy focuses on low-volatility stocks while considering factors such as value, quality, sentiment, and momentum to construct an optimised and diversified portfolio of 150 to 200 stocks. The team regularly introduces new enhancements to refine stock selection models and portfolio construction methods. This well-structured, robust, and repeatable investment process has proven its worth over time, with low portfolio turnover and a capacity for innovation compensating for the potential complexity of the approach.
Veritas employs a qualitative, bottom-up approach centred on in-depth fundamental research. The emphasis lies on identifying high-quality companies that generate significant cash flow and possess the ability to maintain these characteristics due to competitive advantages. While the focus is on quality, the team remains mindful of valuation. They construct a concentrated, conviction-based portfolio of 25 to 40 stocks with a long-term investment horizon. The selective nature of the process means the team is willing to hold cash when they find insufficient attractive opportunities. Execution of this time-tested approach has generally been strong, with analysts playing a key role.
Portfolio
The portfolios of Robeco and Veritas reflect their distinctive investment strategies, with clear differences in structure and focus.
Robeco’s broadly diversified portfolio of 150 to 200 positions leans towards defensive, low-volatility stocks that trade at attractive valuations and offer relatively high dividend yields. This results in a preference for sectors such as consumer staples and telecommunications. Conversely, technology has always been underrepresented due to high valuations. A significant structural underweight in US equities and a notable allocation to mid- and smallcap stocks, which typically make up more than a quarter of the portfolio, also characterise the fund.
Veritas, on the other hand, opts for a concentrated portfolio of just 25 to 40 stocks, focusing on quality companies with sustainable competitive advantages. As a result, sectors like utilities and energy are entirely avoided, while healthcare and industrials dominate the portfolio. With an active share of 90 percent, the largecap-oriented portfolio deviates significantly from the index, offering substantial alpha potential but also leaving little room for error.
Performance
The performance of Robeco and Veritas highlights the differences in their investment strategies.
Robeco’s defensive approach aims to win by limiting losses. The strategy typically provides protection in volatile markets but lags during broad market rallies. This is evident from the fund’s track record, where it has, on average, lost 30 percent less than the index in down markets since its launch. While long-term returns trail the Morningstar Global TME category index, risk-adjusted results remain competitive due to low volatility and limited drawdowns.
Veritas boasts a robust long-term track record, having outperformed the Morningstar Global TME category index on a risk-adjusted basis since inception. The managers’ focus on cash-generating, high-quality companies with strong balance sheets, along with their willingness to hold cash during overvalued markets, has helped the fund navigate difficult periods, such as the pandemic in 2020. However, performance over the past three to five years has been more muted, with returns trailing the benchmark.
A lack of exposure to sectors such as energy and financials contributed to recent underperformance, while stock selection in healthcare and industrials was less successful in 2023.
Jeffrey Schumacher is Director of Manager Research at Morningstar Benelux. Morningstar analyses and rates investment funds based on quantitative and qualitative research. Morningstar is part of the expert panel at Investment Officer.