Smith has been with Setanta since its launch in the middle of 1998. He manages its global healthcare portfolio and helps run its managed pension fund. He co-manages the CL/Setanta Pension Focus 15 fund with Joe Mottley, the company’s head of equity strategy.
Setanta Asset Management has about €4.5 billion in assets under management, with the Focus 15 accounting for about €130m of clients’ money.
Investment philosophy
Setanta focuses on stock selection rather than working down from a macroeconomic perspective. “We look for certain characteristics, such as good companies that we understand, with a proven track record and strong financials,” said Smith. “But the key consideration is the stock’s valuation and upside potential.” Stocks are evaluated by Setanta in the context of peers in their global sectors, rather than in their domestic markets.
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Performance
The CL/Setanta Pension Focus 15 fund delivered a 34.4% return over the two years to the end of 2005.
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Buying and selling
The fund switched from Swatch, a Swiss watch group, to Merck, an American drug firm, last month in order to lock in profits from the watchmaker’s strong performance over the 18 months during which the fund held the stock.
Merck’s shares may be out of vogue because of litigation worries hanging over Vioxx, the group’s former blockbuster painkiller, which was withdrawn from the market in 2004 over potential safety concerns, but Smith believes there are a few factors that could send the stock higher.
“It has a dividend yield of almost 5%, and a very low valuation of 12 times earnings estimates,” he said. “Merck has new management in place, which is concentrating on cutting costs. Meanwhile, it has a pipeline of products that is not yet fully understood by the market.”
Synthes, a Swiss-based maker of medical devices, counts as another recent buy. “This highly profitable firm is a market leader of equipment used for trauma surgery and has very high growth potential. The stock is undervalued on that basis,” he said, adding that the company is seeing significant synergies since its acquisition of Swiss rival Mathys in 2004.
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Setanta sold its holding in Samsung, the Korean electronics group, a few months ago on valuation grounds.
Outlook
Smith is cautious about the year ahead. “I believe corporate profitability, especially in the US, is close to peaking and any deterioration is likely to put pressure on the stock market,” he said.
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Valuations across the globe do not look terribly high, he says. “Any pull-back by the market from current levels could provide a good entry point for investors looking to take a medium- to long-term view.”