Andy Nigg joined Bank J Safra Sarasin in 2018 as head of US & global sustainable equities and is now responsible for sustainable US portfolios. As an international group committed to sustainability, J Safra Sarasin is well established through its banks in more than 25 locations in Europe, Asia, the Middle East, Latin America and the Caribbean.
A global symbol of private banking and wealth management, the group emphasizes security and well-managed conservative growth for its clients. At the end of December 2018, it managed total client assets of CHF165 bn ($166 bn) and employed about 2,200 staff, with stockholders’ equity of CHF5.1 bn.
Prior to this, Nigg was at Vontobel for 20 years in a variety of roles. He was senior portfolio manager and head of the equity and commodity strategy within the multi-asset-class department. Before that, he was responsible for the global equities team, during which time he managed global and North American equity portfolios and funds.
Prior to joining Vontobel, Nigg worked as a portfolio manager at UBS from 1994 to 1998, managing US and Canadian equity funds and portfolios. He began his career at the retail banking division of Hong Kong Bank of Canada in Calgary.
Nigg is a CFA charterholder, holds a Swiss Banking School (now Swiss Finance Institute) degree and earned a bachelor of commerce degree from the University of Calgary, Canada. Today, his main focus is on US equities.
YOU HAVE A GREAT DEAL OF EXPERIENCE IN INVESTMENT MANAGEMENT IN ZURICH. WHAT’S CHANGED SINCE YOU STARTED?
The means by which information is distributed. When I started, we all had fax machines and got huge piles of mail every day. Ten years ago, I would have said email. Today, social media has taken on a massive role.
Although we have a long-term investment approach, the pressure for short-term performance has changed massively since the 1990s. Now it is weekly reports vs quarterly or yearly.
WHERE IS THE HEAD OFFICE FROM AN INVESTMENT MANAGEMENT POINT OF VIEW?
Most of the investment management teams are in Zurich, which is where I am based.
ARE ALL INVESTMENTS SUSTAINABLE? WHICH SECTORS ARE UNINVESTABLE?
All investments for the funds and mandates managed in the team are sustainable. For the rest of the bank, approximately two thirds of the assets managed are sustainable. But even if investments are not sustainable, we use resources to reduce risk.
Some sectors are uninvestable: nuclear energy, GMO agriculture, defense, tobacco, adult entertainment and coal. Some areas are harder to invest in – for example, utilities and energy names have higher hurdle rates than healthcare investments.
DO YOU VOTE YOUR PROXY FOR FOREIGN SHARES?
Yes. We engage with companies via proxy voting and we engage directly if we think their rating could be better, or if they risk being downgraded.
WHAT IS THE VALUE OF ASSETS UNDER MANAGEMENT IN YOUR TEAM?
There is $1.8 bn in equities. The team covers global, US, European, Swiss and thematic equities, but we also manage portfolios for private banking.
WHAT DATA DO YOU USE?
We look at a company’s sustainability score. We use MSCI, other sources of data and our own screening methodology, which is based on our investment process. MSCI’s ESG division is doing really well. It has a leading market position.
WHAT’S YOUR INVESTMENT STYLE?
Blend.
WHAT’S YOUR ACTIVE SHARE?
For the US fund, around 80 percent; it’s higher in the global fund and lower in the Swiss fund. Our active share in the US would be higher than 80 percent but we have big positions in Microsoft and Amazon that are also large benchmark weights. We aim to have a high active share but want to control our tracking error because we want to manage our risk.
WHAT’S YOUR INVESTMENT HORIZON?
No predetermined timeframe but I aim to keep turnover low to keep costs down – there is little evidence that high turnover creates better performance. I like to hold a stock for as long as possible. Microsoft was a top 10 holding 12 years ago when I was at my previous employer and I now hold it here.
WHAT’S YOUR LARGEST POSITION?
Microsoft is our largest position in the fund – 4 percent overweight against a stock’s weight in the benchmark is as large as we can go, so I have had to reduce my Microsoft position on occasion because it has exceeded our 4 percent rule.
BUYBACKS OR DIVIDENDS?
Not something we really focus on. Most US CEOs like buybacks as they believe they support the stock price, and I suppose it does help when you know there’s always a buyer in the market. I guess the aggressive buybacks in the US (helped by tax reform) have made it a more attractive market from a supply-demand perspective than in European markets, which don’t do buybacks to the same extent.
TELL US ABOUT SOME OF YOUR HOLDINGS
MSCI has been a holding since I joined J Safra Sarasin. We like its market position, which is incredibly strong – most benchmarks are MSCI.
While many in the investment industry have suffered from the shift from active to passive management, MSCI has benefited. It is used by passive and active managers and there are new benchmarks to track these new styles. It has done a really good job and is a super-profitable business. It has a really good moat [an ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms].
It would be a difficult sell to get managers to ditch MSCI and use other benchmarks. Although the chief executive has been there a long time, the company is very good at catching new trends such as ESG; it is on the ball and in a field that will continue to grow. The only headache I have with it is valuation – it’s difficult to say it’s a cheap name.
Within resources, energy is the only place I have exposure to and only one in five companies would pass the ESG hurdle. ConocoPhillips clearly differentiates itself from its peers in terms of sustainability. Energy is a funny sector where CEOs have made themselves – but often not investors – rich. They drill and get bigger and hope to get bought by someone. There is little focus on true value creation. The sector overall has poor returns and is not of high quality.
ConocoPhillips took the decision early on to focus on free cash flow and not grow for the sake of it. It’s a cyclical business but ConocoPhillips can be profitable when the oil price is low. It is one step ahead of the competition and did well in H2 2018 – unlike many of its peers – as it is positioned for the new world. Other energy names have now embraced ConocoPhillips’ approach. As a result of this, we could hold it for a long time. It’s a difficult sector in a challenged area so I’m not overweight energy in the fund. I am well below the benchmark in terms of carbon exposure.
ANY RECENT SALES? IF SO, WHY?
Estée Lauder is a great company with a fantastic global position, but we trimmed the position when it got close to its price target. With worries over trade discussions and slowing global growth, if things get worse, Estée Lauder is the kind of name that becomes riskier. I can always add back to the position if it gets beaten up.
DO YOU HAVE TO MEET WITH MANAGEMENT BEFORE YOU BUY A STOCK?
We do a lot of due diligence, which includes an attempt to speak to a company. For example, Colgate is a name we bought for the fund this year. I’ve not met it yet this year (although I have met it in the past) so while it was not necessary to see the CEO, our consumer analyst (who also happens to be the co-manager for the US fund) had a call with IR. We also spoke with analysts and industry consultants.
We try to understand the business fundamentals, so it is a thorough exercise to initiate on a new name. As a general observation, however, I like attending meetings as I always learn something.
HAS MIFID II AFFECTED YOU, EVEN THOUGH YOU ARE IN SWITZERLAND?
Mifid II has changed the way research is paid for in Switzerland, too. It has made some US brokers/analysts a bit more reluctant to visit Europe.
WHAT ARE SOME OF THE BEST COMPANIES AT IR?
Reg FD changed the ballgame – companies are more careful about what they say and how they communicate. But Tractor Supply Co has done a really good job of consistently coming to Switzerland and providing good access. The same thing can be said for Chubb. FedEx comes regularly, rain or shine, and I value that consistency.
Some companies are opportunistic – for example, US home builders were visiting more frequently before the global financial crisis, less so afterwards. Companies in the $5 bn to $20 bn market cap range tend to be more open. Good luck trying to talk to some of the mega-cap tech names – when you contact them with a question, they refer you to their annual report.
Companies are increasingly quantitative in their targeting efforts and, as Switzerland has the lowest level of ownership disclosure, it is sometimes not prioritized as highly as it used to be.
DO YOU HAVE ANY MESSAGE FOR COMPANIES CONSIDERING WHETHER OR NOT TO COME TO MEET INVESTORS IN SWITZERLAND?
Look at the whole asset base managed in Switzerland. You can see our fund holdings, but we provide ideas for the private bank as well. Switzerland remains a very important financial center.
ANY TIPS FOR COMPANIES ABOUT HOW FIRMS SHOULD COMMUNICATE?
Make sure the information you want investors to see can be found easily – for example, slide decks, conference call details, and so on. Because of Mifid II, direct access is now more important.
WHY SHOULD CORPORATES TARGET BANK J SAFRA SARASIN?
We are not short-term flippers. We meet companies, we’re well prepared and once we make a decision, we’re engaged longer term – and that aligns with what management is looking for. The asset base in Switzerland is pretty good so companies tend to get more bang for their buck than they might think.
Gill Newton is a partner at Phoenix-IR, an independent investor relations consulting firm that also operates CorporateAccessNetwork
This article was published in the Winter 2019 issue of IR Magazine.
