How We Drive a Concentrated Portfolio

Portfolio Perspectives: Dev Chakrabarti, Portfolio Manager for the Concentrated Global Growth Equity Strategies at AllianceBernstein, explains the team’s high conviction investment approach and differentiated take on quality growth opportunities.

Stepping back to the opportunity set we have what we believe is a differentiated take around what quality means to us. I am not going to go through all of them but let me draw on two (see diagram below). Strong management teams, we like to say we want to be in this business with these people. Another one is strong franchises and high barriers to entry. What we are trying to figure out is what is it that this business can do that gives it the right to win, not just over one year, but over three and over five years.

There can be no assurance that any investment objectives will be achieved. Source AB.

How Do You Build Your Financial Models?

This is a continuous collaboration between portfolio managers and analysts. We look to build estimates for earnings five years out. Our risk aware approach focuses on businesses with sustainable growth trajectories to reduce earnings volatility (see step one in the diagram below). We ascribe what we call a ‘terminal multiple’ as a premium or a discount to the underlying index (see step two below). It’s key to understand that this is always a fade to where the stock is trading today. In other words, we expect companies to reach their price target by hitting their earnings estimates, not by expanding their valuation. 

Our last step (see step three below) is to add a discount rate from where we view the stock to be valued today. This is more nuanced as we look out globally, where we add various tiers of discount rates to account of currency risk, country risk, political risk, as well as the risks in the business model and ESG risks.

Analysis provided for illustrative purposes only and is subject to revision. There can be no assurance that any investment objectives will be achieved. Source AB.

The end result is to drive an investment universe from which we can construct a portfolio that shows us where the greatest growth opportunity is for companies with high-quality growth characteristics and an attractive valuation as well. 

There can be no assurance that any investment objectives will be achieved. Source AB.

AllianceBernstein Concentrated Global Growth Strategies

We manage two funds under the concentrated global platform here at AB. A Luxembourg domiciled SICAV (AB Concentrated Global Equity Portfolio) and we are delighted to be able to offer UK investors a concentrated global growth OEIC (ES AllianceBernstein Concentrated Global Equity Fund) which has been going since March 2020.

The value of investments, and the income from them, can fall as well as rise and you may not get back the original amount invested. The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio management teams. AllianceBernstein Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. 

The ES AllianceBernstein Funds are Sub Funds of ES AllianceBernstein UK OEIC, an open-ended investment company. Equity Trustees Fund Services Ltd is the Authorised Corporate Director (ACD) of the Funds. The Prospectus, KIID, annual and semi-annual reports are available, in English, free of charge from the ACD's website, (www.equitytrustees.com). 

Equities Risk: The value of equity investments may fluctuate in response to the activities and results of individual companies or because of market and economic conditions. These investments may decline over short- or long-term periods.

Focused Fund Risk: Investing in a limited number of issuers, industries, sectors or countries may subject the Fund to greater volatility than one invested in a larger or more diverse array of securities. 

Smaller Capitalization Companies Risk: Investment in securities of companies with relatively small market capitalizations may be subject to more abrupt or erratic market movements because the securities are typically traded in lower volume and are subject to greater business risk.

Derivatives Risk: The Fund may include financial derivative instruments. These may be used to obtain, increase or reduce exposure to underlying assets and may create gearing; their use may result in greater fluctuations of the net asset value.

Other Risks Include: Fund turnover risk, emerging-markets risk and OTC derivatives counterparties risk.

These and other risks are described in the Fund’s prospectus.