Top 1% Mutual Fund Co-Manager
- The Guinness Atkinson Global Innovators Fund has outperformed 99% of opposing funds over the past 15 years.
- Portfolio manager Ian Mortimer has succeeded by focusing on high-quality stocks.
- Here are four growth stocks that are key constituents of the fund.
As its ticker suggests, the Guinness Atkinson Global Innovators Fund (IWIRX) has been working for investors. The large-cap growth fund has beaten 96% of funds in its category over the past decade and 99% of its peers over the past 15 years, according to Morningstar.
During this race, there have been periods of dominance as well as lean years. The fund has outperformed at least 85% of competitors in all but one year from 2012 to 2017, but it has also suffered steep declines in 2018 and 2022 – so far, at least – as growth stocks have been criticized at all levels in the first half of the year with a few exceptions.
But Ian Mortimer, a portfolio manager at Guinness Asset Management who co-managed the 24-year-old fund IWIRX alongside his colleague Matthew Page for more than 11 years, thinks better days are ahead for quality growth stocks, even if the days of euphoric -motivated investing are over.
“We would certainly look back and say there were pockets of the market that were clearly very, very valued for these future growth prospects,” Mortimer told Insider in a recent interview.
Mortimer added: “You’re hoping that over the next two earnings seasons, companies that show continued earnings growth – particularly if it’s more secular in nature – and a guide to reasonable growth going forward should be well rewarded.”
Choose growth stocks carefully
Only certain growth stocks can become one of the Guinness Atkinson Global Innovators Fund’s 30 equally-weighted names. As guardians of the mutual fund, Mortimer and Page target companies that are growing faster than the market but are still sustainable.
“Just because the company is innovating or growing fast doesn’t necessarily mean it’s a good investment,” Mortimer said.
There’s a misconception about the word “innovative,” Mortimer said, because not all companies that create value by improving products or services are newbies disrupting an industry.
Innovation can come from big or small companies in any field, but there are nine secular growth themes that tend to have a high concentration of transformative companies, Mortimer said: advanced healthcare, artificial intelligence/big data, clean energy/sustainability, cloud computing, mobile technology/the Internet of Things (IoT), next generation consumer, payments/financial technology (fintech), robotics/automationand Internet, media and entertainment.
But many of these industries are not only synonymous with innovation. For years, they were also known to house stocks that traded at sky-high valuations as investors waged fierce bidding wars for companies they believed would one day change the world.
“If you go back in time, we’ve seen a lot of these types of periods,” Mortimer said. “And again, there can’t be that many winners at that kind of level. It’s possible, but historically there haven’t been that many winners at that kind of level.”
Growth investors should first be wary of stocks that are in a bubble. Mortimer and Page avoid these stocks by focusing on quality and looking for companies with the following characteristics: reasonable valuations, strong capital returns, healthy balance sheetsand material gains instead of just promising revenue growth. This prevents them from overpaying for bad deeds.
“What we’re trying to do is limit how much we pay for future growth versus what we pay today,” Mortimer said. “So if that growth disappoints – which can often be the case because we know growth is very hard to predict – then hopefully it will save you from paying a lot for future expectations that may or may not occur. .”
4 growth stocks to buy
Below are four stocks that fit the “innovator” criteria outlined above by Mortimer and are therefore key components of the Guinness Atkinson Global Innovators Fund.
“These are the types of businesses that have long avenues for future growth and, ideally, good opportunities to reinvest in their business to generate more growth in the future,” Mortimer said.
With each name there is its ticker, market cap, price to earnings (P/E) ratio and Mortimer’s investment thesis.