A new framework for global equity investing
The Jupiter Global Equity Growth Unconstrained Fund is managed by a team of investors at NZS Capital, with whom Jupiter has entered into a strategic partnership.
The NZS team are highly experienced investors who have developed their style of investing based on the idea of ‘Complexity Investing’. This framework focuses on actively selecting business models that exhibit resilience and optionality, which the team believe will successfully navigate long-term disruptive forces to the global economy. The team’s portfolios are designed to capture the growth of innovation across industry sectors worldwide.
In short, the NZS team doesn’t invest in innovation and disruption; they invest because of innovation and disruption.
In search of “non-zero sumness”
The digitization of the global economy requires a new approach that focuses on businesses best able to handle change in a volatile world. For NZS, this begins with identifying companies that have “non-zero sumness”. Companies that exhibit non-zero sumness understand that exploiting customers by building moats doesn’t protect them – it creates risk by making them a target for disruptors with a better idea and better execution. Such companies appreciate that growth is only good if it is sustainable, and that the companies that benefit all their constituents will do the best. The concept of “non-zero-sumness”, is so core to the NZS teams’ beliefs that they named their company after it.
“Balancing Resilience and Optionality allows us to remain agnostic about the various paths that the future might take”
Volatility is often thought of as risk but, for NZS, the volatility inherent to complex systems leads to emergent behaviour that improves the system over time. This approach balances ‘Resilience’ and ‘Optionality’ to avoid pitfalls from the false belief in a normally distributed world.
Resilience: The relentless pursuit of productivity at the expense of resilience has been the dominant business philosophy for decades.
In the animal kingdom, ants are the epitome of industriousness and diligence, yet the surprising truth is that most of the time half the colony is just sitting around doing nothing. In fact, ants have adapted to be resilient to extreme events. If a flash flood kills those out harvesting, or an animal damages part of the colony, then there are plenty of ants in reserves to stage a recovery.
Translating that to business, resilient companies are those that are less optimised on maximising short-term returns and more focused on their ability to adapt and evolve to changing conditions, surviving and even capitalising upon extreme events.
Optionality refers to a large potential payoff resulting from a relatively small investment – it’s how the power laws mentioned earlier can work in our favour. Power laws are no secret to venture capitalists, they know that many of their investments will amount to nothing and they only need a small number of winners to make the portfolio successful. For start-ups and disruptive businesses, the uncertainty may be too great to feel confident about outcomes for specific investments, but holding many companies with a high degree of optionality could produce several losers and it could also produce a few outsized winners.
Quality, Growth and Context
For NZS there are three key factors to consider when searching for businesses that can thrive in a complex system, creating an optimal balance of resilience and optionality. These are: quality, growth and context.
Quality: The essence of a quality business comes down to its management team and structure. Long-term thinking and adaptability are two sides of the same coin, as often a successful company will balance a focus on what will NOT change for their business with a strong ability to anticipate the evolving needs of customers.
Growth and ‘Non-zero sum’: A company that operates a platform focused on creating value for all participants, including itself, is creating large amounts of non-zero sumness. The optimal win-win situation is achieved when the platform creates more value for the ecosystem than it does for the company’s own treasury. Companies with this quality can have stable, long-term growth rates.
Context and understanding change: NZS select investments that will not make the overall portfolio fragile to a particular view of the future. This is why much of their research is directed toward understanding what is going on within the ecosystems, what headwinds/tailwinds each business faces, and what predications about the future the current valuation asks investors to make.
Using a barbell to squeeze the middle
Achieving a balance of Resilience and Optionality results in a barbell, with the majority of weight in companies that combine both Resilience and Optionality, and the remainder in a diversified selection of small investments that maximise Optionality.
An important part of this strategy is to squeeze out the “middle” position sizes, which the NZS team believe are more likely to be market performers and take away from potential long-term alpha. Because this strategy does not attempt to optimize risk/ reward, it allows the NZS team to better avoid becoming victims of the cognitive biases that prove so erosive to long-term performance.
More information about NZS Capital and their investment approach can be found at www.nzscapital.com.
The fund can invest in emerging markets, which carry increased liquidity and volatility risks. This fund invests mainly in shares and it is likely to experience fluctuations in price which are larger than funds that invest only in bonds and/or cash. Quarterly income payments will fluctuate. All of the fund’s expenses are charged to capital, which can reduce the potential for capital growth. The KIID and Prospectus are available from Jupiter on request. This fund can invest more than 35% of its value in securities issued or guaranteed by an EEA state.
Meet the team
NZS Capital also consists of investors Jon Bathgate and Joe Furmanski, who each have over 10 years investment experience, and senior adviser Jim Goff who was previously Director of Research at Janus Henderson. NZS Capital’s President and Chief Risk Officer is Adam Schor, who has almost 30 years of industry experience.