(pictured: Harry Rosenbluth)
by Greg Bright
The well-travelled Harry Rosenbluth borrows a term coined by Warren Buffett to describe the current environment for global equities: “there are no fat pitches”; at least in the developed markets. There may be no obvious mispricings, which is what he means, but good managers can always find ways to make money.
Rosenbluth is an advisor to Boston Partners Asset Management, which is an affiliate of global quant manager Robeco, but his association with the firm dates back to 1981 through its previous guises and owners, and he has managed global and US portfolios for more than 30 years.
The consensus earnings estimates for Japan, Europe, the UK and North America for 2016 imply valuations of about 14-16 times. The numbers are roughly the same across size, although large-cap stocks generally deserve to trade at a premium. Valuations should not be the only investment criterion, Rosenbluth advises. “You can’t look at valuations in a vacuum – you have to look at them in terms of earnings growth too.”
The occasional guest lecturer at University of California, Berkley and one of the founders of Boston Partners as a privately owned firm in 1995 was on an annual visit to Australia last week. He likes to travel and these days manages to combine it with his work. He is well travelled literally and figuratively.
Rosenbluth entered the industry in 1981 with the Boston Company Asset Management, which was later acquired by Mellon Bank. About 1995, he and other senior managers proposed a management buy-out to Mellon and were promptly fired by the bank. They responded by forming Boston Partners and attracting about 30 of their former colleagues to also join. Mellon sued and the team counter-sued.
When the dust settled Boston Partners settled down to grow the business and when it got to about US$10 billion under management they sold to Robeco in 2002. It’s been good for both camps, today representing about $80 billion under management, at least one-quarter of which is for non-US clients.
In Australia, Robeco has a unit trust as a feeder fund for the global investing strategy – Robeco BP Global Premium Equities – which it launched late last year. It can only point to a six-month track record (7.48 per cent return versus the index’s 7.06 per cent) but the euro-denominated fund on which it is based can show a 10-year outperformance track record of 6.69 per cent versus the index’s 6.03 per cent.
At the expiry of his four-year contract with Robeco, Rosenbluth got itchy feet, “retired” and embarked on a five-year period of travel with his wife. But his former colleagues stayed in touch and eventually lured him back with the promise of a free reign as advisor to the rest of the team and a continued generous travel budget.
“Chris Hart [who runs the main global equities fund] and his team do all the heavy lifting,” Rosenbluth says. “I come in and chat, I cause problems, I question everything… I also think I provide a link to the past in terms of the firm’s culture. I get involved in hiring and firing. I’m involved with the portfolios but I don’t do any research… Also, I’m able to travel a lot.”
That link with the past is very important for Boston Partners, because the investment style actually dates back to the 1970s, before Rosenbluth started up the learning curve at the firm’s predecessor company.
The core component of the process is the belief in three persistent anomalies which it call its “three circles”. These are: value; quality; and, “business moment” (as distinct from the commonly used price momentum style).
With each ‘circle’ the managers look at both qualitative and quantitative information with varying degrees of emphasis. For instance, with business momentum, where the manager is trying to find inflection points in a business, qualitative information is far more useful, Rosenbluth says.
Processes change through cycles, though. In the current climate a company’s free cashflow is very valuable because valuations tend to be compressed and global growth is limited. It is important, however, to look at what the company does with its cashflow, Rosenbluth says. In the US, corporate balance sheets are the best they have ever been so, generally, companies are better off returning it to shareholders than spending it on new investment.
NOTE: Warren Buffett famously said: “wait for a fat pitch and swing for the fences”. A ‘fat’ pitch in baseball is one that is easier to hit, thrown just outside the strike zone. It’s not good advice because the average investor, unlike Buffett, rarely gets to see a genuine fat pitch. Investors will invariably be better off with a more consistent and disciplined approach. There being no fat pitches, it is unsurprising to observe, suits Boston Partners’ style down to a tee.
What to do when there are no fat pitches: try harder
(pictured: Harry Rosenbluth)