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Advisor select

Jason Marino is an Investment Director for MassMutual U.S. Investment Solutions Innovation and has more than 16 years of experience in the retirement services industry. His ana +

MassMutual Premier International Equity Fund
MMIAX (A Shares)
MIELX (Adm Shares)
MIZIX (I Shares)
MIEDX (R5 Shares)
MYIEX (Svc Shares)
Fund Family
MassMutual Funds
Fund Advisor
MML Investment Advisers, LLC
Sub Advisor
OFI Global Institutional, Inc.

1295 State Street
Springfield, MA 01111

T: 866-444-2601

Harnessing the Rising Middle Class Across the Globe
MassMutual Premier International Equity Fund
Jul 2, 2018

Q: Would you give us an overview of the history and the mission of the fund?

The fund was launched in 1995 with the goal to provide a portfolio of growing companies outside of the U.S. Since inception, the portfolio has been managed by George Evans. In 2012, Robert Dunphy joined him as co-manager of the fund. George and Rob are directly supported by the global team at Oppenheimer, which includes nine portfolio managers and 10 analysts. The subadvisor of the fund is OFI Global Institutional, Inc. 

Q: Why should investors consider your fund? What are the unique features of the fund?

Structural growth is our thematic approach to investing. We look at dynamic areas of the market that are set to benefit from the rising middle class.

There are multiple reasons. First, there is a portfolio manager, who has been managing the fund since inception. We have a well-seasoned process; we’ve seen a number of global and macroeconomic shocks and have done well throughout them. 

One of the differentiating features is that we have an outlook of five or more years, so this isn’t a quarter-to-quarter type of fund. It is a long-term, structural growth portfolio, where we invest in companies that are set to benefit from the economic drivers of MANTRA, or Mass Affluence, New Technology, Restructuring and Aging. 

What sets this product apart is that we look at companies and industries that are set to benefit from the globalization, the increased wealth of emerging market consumers, and the proliferation of the Western lifestyle. These are long-term trends and so is our focus.

Q: What core tenets drive the fund’s investment philosophy?

The rise of the middle class across the globe is the core tenet that drives the portfolio. But the main philosophy is that consistent outperformance can be achieved by investing in companies that are set to benefit from structural growth and have sustainable quality. From a portfolio management perspective, the long-term focus is a key element.

Structural growth is our thematic approach to investing. We look at dynamic areas of the market that are set to benefit from the rising middle class. This can be anything, from investing in Airbus SE, because air travel has become affordable, to investing in a semi-conductor stock as we see more automation in the auto industry. There aren’t many commodity-related firms in the portfolio.

Q: What are the key features of the companies in the portfolio?

The managers of the fund look for sustainable quality. The companies should be able to sustain or improve their returns over the cost of capital. That tends to be a rather narrow universe. Oppenheimer looks for companies that maintain an elevated return on equity through structural advantage and companies that deliver strong shareholder return.  

If a company had a bad quarter but the long-term tenets are in place, the management wouldn’t overreact. It would stick with a name as long as the long-term drivers of the investment thesis are intact. It is a portfolio with a relatively low turnover.

We focus on companies that rely not on the price of oil to drive earnings, but on an increasing demand for the end product or a structural change in the global economy. We also look for managements, who are able to effectively grow a company, maintain balance sheet discipline, and are appropriate stewards of capital to grow shareholder value. We avoid companies that depend on the price of oil, gold, or a particular mineral.

Q: Would you describe your investment process?

The fundamental bottom-up research drives everything, from security and sector weights to country and industry allocation. The analysts and the portfolio managers aim to identify high-quality companies that are able to deliver sustainable growth over the next five to ten years and are trading at attractive valuations. We look for businesses with high probability of maintaining above-average returns, so we focus on companies that have differentiated business models, strong balance sheets, proven management, and high barriers to entry. After we buy these companies, we aim to hold them for the next five, eight, or 10 years.

George and Rob have the final word over what goes into the portfolio. Their analysis leads them to a focus list of about 450 names that look attractive. Then the team monitors these names and based on a valuation analysis, we buy them once they hit an attractive point. 

We have an entirely bottom-up, research-driven process with George and Rob making the final decisions. It is an international portfolio, which tends to focus on the large-cap universe, although sometimes the management will hold some mid-cap names as well.

Q: Does the portfolio team visit the companies and talk to the management as part of your process?

Yes, the analysts meet with the management of the companies. One of the differentiators of this fund and the other global strategies at Oppenheimer is the collaboration within the team. The analysts on this product travel with analysts from other products to meetings and collaborate on names. Because we are certainly a research bottom-up shop, we do a lot of research by going out and meeting with managers, visiting sites and headquarters.

Q: How do you deal with the different accounting standards across the globe?

The analysts are responsible for that issue. One of the advantages of Oppenheimer is the experienced team and the knowledge of foreign countries in terms of legal and regulatory structures. Also, the benefit of having a broad global team is that we have different cultures at work. There are different points of view from people with various geographic backgrounds. 

Q: How do you coordinate the process with your subadvisor?

We monitor them on a daily basis by looking at what they’ve bought or sold. We also monitor the performance relative to both the benchmark and the peer group to make sure that performance is within expectations. If it isn’t, we seek to understand the reasons.

  • Inception: January 31, 1995
  • AUM: $543 million

We meet with the portfolio managers on an annual basis, but we are in contact at least quarterly with each of our subadvisors to discuss our portfolios. Overall, we allow them to run the portfolios according to their mandate and we ensure that they continue to do so.

Q: Do the subadvisors avoid certain areas of investments?

We have a valuation discipline and we are certainly don’t have portfolio holdings that are trading at a 60, 70, 80 multiple. For example, the Street right now is very bullish on energy, but this portfolio is underweight in energy because it’s a commodity type of investment. Financials is another area that George Evan feels is highly regulated and without a lot of room for growth. The portfolio has been typically underweight in financials. The subadvisors are after structural growth, not just after growth in the next quarter. They are not beholden to what interest rates are doing or where the price of an underlying commodity is going.

Q: Can you describe your research process with a couple of examples?

I would use the example of Hermès International S.A., the French high fashion luxury goods manufacturer. This is a play on the increasing middle class and the aspiration brands out there. People are drawn to the brand as they make money, but the core clientele tends to be pretty inelastic. As the middle class grows, it is buying more Hermes bags and products and the stock has became an attractive opportunity to play that structural growth theme.

Another example of a stock that has worked out well is Baidu, Inc. which was recently purchased into the portfolio. Oppenheimer purchased it for the portfolio because of the valuation, the growth, and the position of the company within China. The main factors were the growth profile that the company presented, the strength of the balance sheet, and the e-commerce growth.

An example of something that didn’t work out is a company called Dignity PLC, a funeral services provider in the UK. This was seen as a very stable business with strong recurring cash flows. The industry is rather consolidated industry, but a new competitor came into this space. Then David Bowie, the English singer, songwriter and actor, did not want an elaborate funeral and went a more conservative route. That was a catalyst for change and many of the higher-end services and margins of the funeral services provider were squeezed out. The trend brought the name under pressure, so Oppenheimer revaluated it based on the change in the marketplace.

Q: Would you describe the portfolio construction process?

The portfolio is built from the bottom-up and is invested in structural, thematic growth and in companies with strong and defensible competitive advantages. The team looks at the supply chain in the industry of each company.  It takes into account the ROE, the discounted cash flow, the cash flow and the economic value added of each of the prospective companies. Through the fundamental analysis and the upfront work, the team develops a focus list of 450 names. 

We do not populate the portfolio with names until the market provides an opportunity to buy the company at an attractive price. Once there is an attractive point, they would typically build positions starting from 10 to 20 basis points. The team buys probably 10 to 15 names per year for the portfolio. They constantly revisit the holdings to see if they still merit investment.

The size of each position is a function of the conviction. If we have an exposure of 30% in Europe, 20% in Japan, and 10% in Switzerland, that exposure is a function of the bottom-up process. Sector exposure, again, is largely an outcome of the bottom-up research process. 

Typically, we re-evaluate a security when there’s a higher risk, when the downside becomes outsized, when the positions overshoot their desired weightings, or when valuations become stretched.

We would sell a security if we lose faith in the management whether it’s through a change in management or an ill-fated acquisition or an acquisition outside the core business. For instance, a French baker made an acquisition that was out of the ordinary and that move ultimately led to Oppenheimer selling the security.

The limits we impose are 3% for individual holdings, 25% for industries, and 35% for countries. However, for the emerging markets the limit is 25%.

Q: How do you define and manage risk?

For this portfolio Oppenheimer defines risk as permanent loss of capital. We mitigate that risk through the fundamental research. We believe that quality companies with strong secular drivers of growth, reasonable amount of debt on the balance sheet, and strong management teams are the types of companies that tend to do well over time. Identifying these quality companies is a big part of risk management.

There’s also an independent risk management team at Oppenheimer as well as corporate level risk control teams. As managers at MassMutual, we look at risk from the standpoint of tracking error and return. We evaluate the concentration of the top holdings and we ensure that the portfolio is behaving in line with our expectations in any given market environment.