FRGT: Quality growth approach is successful over the long term
FRGT’s manager seeks high-quality growth names, which in essence are companies with
strong industry, financial and governance attributes that are trading on reasonable
valuations. An ideal candidate should have a dominant position in an industry that
has high barriers to entry and low disruption risk, thereby benefiting from strong
pricing power. The company should have structural growth prospects, be generating
high returns on invested capital, have compounding cash flows and be led by a quality
management team that fosters a strong corporate culture within the business.
The outlook for FRGT’s relative performance is looking brighter as stock market leadership
broadens out and investors once more focus on company fundamentals, which have been
the long-term driver of stock market returns. If the global economy weakens, high-quality
companies with resilient earnings and cash flow growth should perform relatively well.
Recent development
On 22 May 2025, FRGT’s board announced that due to the retirement of the Martin Currie
brand, effective on 12 July 2025, the GLTU team will join Franklin Templeton’s FEG,
with FEG’s CIO, Jonathan Curtis, becoming the trust’s co-manager. In the meantime,
Osmani and Curtis will work closely together to ensure a smooth transition. Curtis
has more than 30 years of industry experience and as FEG’s executive vice president
and CIO has oversight of investment teams that manage equity and convertibles strategies,
along with FEG’s research and venture capital teams. FEG is headquartered in the middle
of Silicon Valley, and the team has in-depth expertise in managing global, US and
sector-specific strategies across the style and capitalisation spectrums. At the end
of 2024, FEG had more than $130bn of assets under management.
Continuous improvement in the investment process
Over time, there are continuous improvements made to FRGT’s investment process. As
2024 was a difficult year for performance, improving the process was an increased
area of focus:
- A greater efficiency from screening, which provides an earlier indication of earnings
and share price trends.
- An improved research pipeline generation, with a higher number of new stock ideas,
leads to increased tension to get a new name in the portfolio; hence, the portfolio
quality should be constantly upgraded.
- Enhanced research capacity, as two new analysts have been hired and the GLTU team
is engaging with additional sell-side firms. The team will officially join the FEG
(which covers the whole US market) in July 2025.
- Increased focus on earnings risk assessment (both short- and long-term risks), as
avoiding earnings misses can greatly improve performance.
- Better emphasis on key thesis indicators (KTIs), which provide a timelier identification
of operational deviations away from the core investment thesis. Stocks are ranked
on a scale of one (lowest risk) to five (highest risk).
- A sharpened sell discipline, which involves a faster and lower tolerance review of
stocks on the ‘hospital list’. There is a maximum of two weeks to decide whether a
holding with a high KTI deserves to remain in the portfolio.
Focus on healthcare, FRGT’s largest overweight sector versus the benchmark
Healthcare is an unloved sector, which the manager believes has the potential to perform
relatively better. It is the largest active bet in the portfolio, with a weighting
more than 15pp higher than the index. Osmani explains that the healthcare sector has
favourable demand and earnings growth characteristics, and also has valuation support.
However, the sector is underperforming due to perceived political risk. Although the
manager expects increased tariffs to be levied on drugs, he suggests that an announcement
could be a market-clearing event by removing uncertainty. Osmani also points to the
biotech sector, where leading indicators are improving, such as an increase in available
funding and an acceleration in the number of new clinical trials.
Within FRGT’s healthcare holdings are three different categories: stable growth (c
50%) – AstraZeneca, Novo Nordisk, CSL, ResMed and Coloplast; defensive growth (c 25%
in animal health) – Idexx and Zoetis; and R&D-driven growth (c 25%) – Sartorius Stedim,
Mettler Toledo and Veeva.