Monthly Strategy Update:
DSM Global Growth, DSM US Large Cap Growth & DSM Emerging Markets Growth

Links to the other Candoris Monthlies:
PAM Senior Loans         Coho ESG US LC        VanEck EMD        VanEck EME       SIM US High Yield

 

Good morning *|FNAME|*,

New Global Growth Investment Letter available, click
here:

Organizational update:
Note from Dan Strickberger: Steve Memishian and I have worked together since 1991, and together co-founded DSM Capital Partners in 2001. Steve, at the young age of 73, has stated that he expects to retire by the end of 2020. Accordingly, we have initiated a search to identify potential candidates for the Chief Operating Officer position. In order to affect a smooth transition of responsibilities, we expect the successful candidate will overlap with Steve for a period of between six and twelve months. We have had a long, productive and enjoyable personal and professional relationship. DSM would not have succeeded without Steve’s unique and extraordinarily broad skillset, patience and very special personality. Inevitably time marches on, and so must Steve, but not quite yet.

DSM has a simple, logical investment philosophy that has worked since inception of the firm in 2001:

Quality growth companies with predictable streams of earnings generate attractive rates of return over time when purchased at reasonable prices.

in other words:
Construct a bottom-up portfolio that substantially increases earnings year in year out, idea driven with an intermediate to long-term investment horizon and a strict valuation discipline in order to avoid the growth trap and you will outperform!

Click here for the:

The firm opened its doors to clients at the beginning of 2002 and is 100% employee owned. There is a strong alignment of interest with clients as the co-founders and employees have most of their assets invested in DSM strategies.

DSM has a team of 9 analysts and investing in about 80 stocks across all strategies. 97% of time of the analysts is spent on analyzing and estimating future earnings. Investments are only made under a strict valuation discipline. Periods of underperformance have always been followed by a period of outperformance as earnings of the DSM stocks typically come through conform DSM’s expectations and valuations follow. 

Please let us know if you like to receive additional information on DSM and the strategies they run. 

Florian.bankeman@candoris.nl

 

 

The month August was a volatile month for equities, with an escalating trade war and uncertainty around global growth. Nevertheless all DSM strategies are outperforming their benchmarks YTD.

Thus far in 2019, the Global Growth composite is ahead of the benchmark and we believe it is driven by both continued strong earnings growth and the compressed valuations at the end of 2018. In our view, portfolio valuations remain quite attractive. Our investment approach is built on the simple indisputable fact that over time “Earnings Win” because businesses tend to appreciate in value as earnings grow. We continue to believe that the ongoing strength in earnings creates a favorable opportunity to add to this portfolio of premier quality growth businesses.

Click here for the complete outlook and performance review

Below all strategies that DSM runs, how they rank vs peers in eVestment and by how much they outperform annualized since inception. All ran by the same team, same philosophy, just different regions and accents:

  • DSM US Large Cap Growth; Rank 8 out of 124 US LC Growth peers since inc. in 2002; +2.22% ann. outperformance over BM.*
    August; 0.14% of underperformance
    (-1.72% vs -1.58%).
  • DSM Global Growth; Rank 10 out of 161 Global LC Equity peers since inc. in 2010; +4.2% ann. outperformance over BM.*
    August; +0.24% of out performance
    (-2.14% vs -2.37%).
  • DSM Global Focus; Rank 2 out of 137 Global LC Equity peers since inc. in 2009; +6.61% ann.  outperformance over BM.*
    August; +0.4% of out performance
    (-1.97% vs -2.37%).

     
  • DSM Global Dividend Growth; Rank 7 out of 124 Global LC Equity peers since inc in 2011; +5.52% ann. outperformance over BM.*
    August; -0.2% of underperformance
    (-2.57% vs -2.37%).
  • DSM EME; Rank 17 out of 171 EME peers since inc. in 2017; +5.35% ann. outperformance over BM.*
    August; +2.44% of out performance
    (-2.44% vs -4.88%).

*Ranking is updated till end of July, not all managers have updated the database yet

DSM Global Growth:
With an up market capture of 123%, a down market capture of  less than 100%, Beta of 1.09 and an annualized outperformance of about 4.2% since inception in 2010 the DSM Global Growth strategy is one of the best Global Growth managers according to databases like eVestment, Mercer and Morningstar direct (5stars). 
Morningstar report DSM Global Growth

Click here for the latest DSM Global Growth 
Investment Letter

 

 

DSM Philosophy and process:
DSM Capital runs concentrated growth strategies that are bottom-up, idea driven with an intermediate to long-term investment horizon. A strict valuation discipline differentiates DSM from other growth managers.





Identifying companies with predictable revenue and earnings growth is an important factor. A team of 9 investment professionals does very in-depth research in a structured framework. DSM seeks companies that grow yearly earnings in the 10- 40% per year range with a horizon of 3 years. As long as the expected EPS growth comes in on target, the investment will most likely be a success. DSM goes further in their research of a company. In order to correctly estimate earnings growth of a company they often consult industry experts, former employees of a company or competitor and sometimes holds in depth surveys (for example among doctors to estimate prescription of a certain drug).

 

Create detailed earnings models for candidate while focusing on major cost drivers.



A very strict valuation discipline is quite unique for growth managers. DSM only buys a stock if the PE is reasonably expected to increase with at least 10%. So no Netflix, Salesforce, only select equities selling below intrinsic value to reduce risk. We believe this helps to reduce risk and enhance long term returns. The target P/E is based on a large number of factors. To name a few: growth rate, historical P/E, P/E’s of peers, entry barriers for competition, number of competitors, can they set a price? etc.

 

 

DSM Global Growth 

 

DSM Global Growth Composite data                                           DSM Global Growth Fund Facts
 

Alpha

4.49

 

 

 

ISIN

LU1016061043

Beta

1.09

 

 

 

Benchmark

MSCI All Country World Index Net

Std Dev

15.06

 

 

 

Currency

EUR

UMC

127.19

 

 

 

Bloomberg ticker

DSMGGI2

DMC

99.31

 

 

 

Asset Class

Equity

Information Ratio

0.81

 

 

 

Type

Growth

Tracking Error

6.50

 

 

 

Region

Global

Sharpe Ratio

0.85

 

 

 

Dividend policy

Accumulating

 

Active Share

90.53%

as of 30-6-2019

 

 

 

 

 

Data as of 31-8-2019 source eVestment

 

Annualized return DSM Global Growth v. Benchmarks and Peers since inception in 2010

 

 

 

DSM US Large Cap Growth 

 

DSM US Large Cap Growth Composite data                               DSM US Large Cap Growth Fund Facts

Alpha

2.66

 

 

 

ISIN

LU1016061126

Beta

0.92

 

 

 

Benchmark

Russell 1000 Growth

Std Dev

14.86

 

 

 

Currency

EUR

UMC

100.96

 

 

 

 

 

DMC

90.70

 

 

 

Asset Class

Equity

Information Ratio

0.34

 

 

 

Type

Growth

Tracking Error

6.39

 

 

 

Region

United States

Sharpe Ratio

0.61

 

 

 

Dividend policy

Accumulating

 

Active Share

73.20%

as of 30-6-2019

 

 

 

 

 

Data as of 31-8-2019 source eVestment

 

Annualized return DSM US Large Cap Growth v. Benchmark and Peers since inception in 2002

 

DSM US Large Cap Growth active trading performance

 

Buy and Hold vs Active Management


  

*The table above is as of 30-6-2019 and shows the performance of the actual DSM strategy and a virtual buy and hold portfolio. The buy and hold portfolio is based on the performance of weights and holdings per the 31st of December (no trading took place). You can clearly see that trimming, adding and switching names does add value.

 

 

Links to updated presentation and other documentation

Click to receive the information


 

 

 

DSM Emerging Markets Equity Growth 

 

Annualized return DSM Emerging Markets Growth v. Benchmark and Peers since inception in 2017

 

 

DSM has launched their Emerging Markets Growth strategy in the summer of 2017 (July 2017), the strategy follows the same successful DSM investment philosophy and process of the Global Growth and US Large Cap Growth strategy.

DSM Capital runs concentrated growth strategies that are bottom-up, idea driven with an intermediate to long-term investment horizon. A strict valuation discipline differentiates DSM from other growth managers.

This leads to an unique strategy focused at concentrated growth active in Emerging Markets Equity space.

 

 

More about DSM

The firm opened its doors to clients at the beginning of 2002 and is 100% employee owned. There is a strong alignment of interest with clients as the co-founders and employees have most of their assets invested in DSM strategies.

DSM Capital runs concentrated growth strategies that are bottom-up, idea driven with an intermediate to long-term investment horizon. A strict valuation discipline differentiates DSM from other growth managers.

Since inception the Global Growth and US Large Cap Growth strategies rank in the top few percentiles versus all peers in the eVestment database till June 2019. 

DSM has a team of 9 analysts and investing in about 80 stocks across all strategies. 97% of time of the analysts is spent on analyzing and estimating future earnings. Investments are only made under a strict valuation discipline. Periods of underperformance have always been followed by a period of outperformance as earnings of the DSM stocks typically come through conform DSM’s expectations and valuations follow. 

 

 

 

* Performances are annualised. The latest data is still preliminary. Data quoted is past performance and current performance may be lower or higher. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate.. "This email is intended to be reviewed by only the intended recipient and may contain information that is privileged and/or confidential. If you are not the intended recipient, you are hereby notified that any review, use, dissemination, disclosure or copying of this email and its attachments, if any, is strictly prohibited. If you have received this email in error, please immediately notify the sender by return email and delete this email from your system."
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