Your Quality Shares Portfolio – investor zone

Dear Investor,

Thank you for choosing to invest in the Quality Shares Portfolio. 

I promised I would tell you where I have invested and why, with no fluff and no jargon. 

In keeping with that, I have prepared a full list of all the companies in the portfolio with notes on why they are there and how they score against four crucial criteria in my investment checklist: resilience, moat, cash and culture.

This information is only for investors like you – may I please ask you don’t share with anybody else.

Please have a look at the portfolio – I hope you like what you see, although, of course, the proof will be in the pudding. If you have any questions, just drop me an email, I always reply personally. 

Thank you again for investing,

Important: The companies listed below have been selected by portfolio manager Charlie Huggins. This is not personal investment advice. The value of shares can fall as well as rise so you may get back less than you invest. Experienced investors should form their own considered view or seek advice if unsure. Charlie invests in the Quality Shares Portfolio himself and holds shares in the companies mentioned.


Portfolio at a glance

Your money is invested – alongside mine – in 15 companies. 

Six are listed in the UK; seven in the US; one in Canada and one in the Netherlands. 

Together they should give a good spread of sectors, as you can see below. Importantly, I think each company is well diversified in its own right – for example, Roper Technologies is home to around 30 separately managed businesses.

Portfolio updates

Portfolio breakdown by sector

These sectors reflect my understanding of what each company does and may differ from standard sector classifications. Sector breakdown based on number of companies.

Full list of portfolio companies

Below is the full list of portfolio companies in alphabetical order. You can see the whole portfolio at a glance and click to drill down into each company. 

Company

Sector

Market cap*

Country of listing

Ametek Inc. (NYSE: AME)
A strong business, getting stronger
Industrials $41.9 bn US
Compass (LSE: CPG)
The world’s largest contract caterer
Contract catering £37.8 bn UK
Croda (LSE: CRDA)
A chemicals company, with a twist
Chemicals £6.3 bn UK
Danaher (NYSE: DHR)
The picks and shovels of biological therapies
Life Sciences $180.9 bn US
Diageo plc (LSE: DGE)
Brands with heritage
Alcoholic beverages £64.1 bn UK
Diploma (LSE: DPLM)
A niche industrial
Industrials £4.8 bn UK
Experian (LSE: EXPN)
A critical cog in the global economy
Data £30.6 bn UK
Idex (NYSE: IEX)
A unique industrial with an entrepreneurial culture
Industrials $18.1 bn US
Microsoft Corporation (NASDAQ: MSFT)
Retaining relevance in a fast-changing world
Tech $3.1 trillion US
MSCI Inc. (NYSE: MSCI)
The doyen of financial data and indexes
Data $42.8 bn US
RELX (LSE: REL)
A data geek
Data £61.8 bn UK
Roper Technologies Inc. (NASDAQ: ROP)
A rare vintage
Tech $58.3 bn US
Texas Instruments (NASDAQ: TXN)
The ‘Amazon’ of analog chips
Computer chips $154.9 bn US
Topicus.com Inc. (TSXV: TOI)
An exceptional acquirer
Tech 10.2 bn CAD Canada
Wolters Kluwer (XAMS: WKL)
Death, taxes and regulation
Tech €34.6 bn Netherlands
* As at market close, 4 April 2024. Market caps are subject to fluctuations.

Ametek (New York Stock Exchange, S&P 500) – a strong business, getting stronger

Ametek-Quality Shares Portfolio.jpgAmetek owns a set of high-quality businesses manufacturing electronic instruments and electromechanical devices. From fans and blowers for the military and aerospace industries to stent and laser contract manufacturing for the medical industry, each business has a strong position across a diverse range of industrial niches. The margins and growth prospects of these businesses have improved over time, through innovation and relentless operational execution. In addition, Ametek has bolstered the quality and growth prospects of its portfolio through highly selective bolt-on acquisitions. It’s a better business than 10 years ago, in my opinion – and I believe the same is likely to be true a decade from now.   

Why I like Ametek

Resilience

  • A mix of cyclical and more defensive end-markets
  • High margins maintained even in severe downturns like the 2008/09 financial crisis
  • Broad end-market exposure reduces dependence on any single market, technology or customer

Moat

  • Number 1 or 2 positions in well-defined niches
  • Highly-engineered, mission-critical products
  • Global sourcing expertise and capability

Cash

  • Asset-light manufacturing, with low capital requirements
  • Culture prioritises cash over revenue and profit
  • Uses cash mainly to acquire other businesses

Culture

  • Entrepreneurial and lean
  • Proven track record of operational execution and improving acquired businesses
  • Disciplined approach to acquisitions and disposals, which has raised business quality

Compass Group plc (London Stock Exchange, FTSE 100) – the world’s largest contract caterer

Compass-Quality Shares Portfolio.jpgRemember school dinners: a stodgy sponge pudding, served with lashings of cold, thick custard – if you were lucky? Thankfully, the world has moved on. Nowadays, schools are more likely to outsource catering to the professionals. Hospitals, care homes and businesses are following the same trend. This is good news for Compass, the world’s largest contract caterer, serving 5.5 billion meals a year in 40 countries. Its size gives it considerable advantages – yet it still commands only a 10% share of a >£200 billion market. This suggests to me there is ample room for further growth.

Why I like Compass

Resilience

  • A reasonably defensive industry – we all need to eat
  • Low fixed costs, helping to protect profit margins when volumes decline
  • Widely diversified by customer, industry and geography

Moat

  • Significant cost advantages due to its scale, e.g. from volume-based food discounts
  • Multi-year customer contracts, with strong retention
  • Deeper pockets than competitors to win new contracts and invest in innovation

Cash

  • Operates from customer premises, limiting capital expenditures
  • Scale means it can extract favourable payment terms from suppliers
  • Uses cash to fund dividends, share buybacks and bolt-on acquisitions

Culture

  • Decentralised and entrepreneurial
  • Historically strong operational execution
  • Has spent money shrewdly, generating strong returns on capital

Croda International plc (London Stock Exchange, FTSE 100) – a chemicals company, with a twist

Croda-Charlie-800x200.jpgThink of a chemicals manufacturer and you probably picture large refineries, smoking chimneys, and the odd industrial spill. Croda is different. Its chemicals come in test tubes and go into skin creams and drug delivery systems. In fact, Croda’s chemicals played a key role in the Pfizer Covid-19 vaccine. I believe Croda’s best days are ahead, with its vaccine success potentially spawning a rich seam of opportunities.

Why I like Croda

Resilience

  • Its chemicals are critical, e.g. they ensure drugs get delivered correctly
  • Serves defensive industries – personal care and healthcare
  • Widely diversified by customer, industry and geography

Moat

  • Products often patent-protected and sold into specialist niches
  • High switching costs, e.g. Croda’s drug delivery systems are specified on regulatory documents
  • Long-term, trusted customer relationships

Cash

  • Making test tube quantities of chemicals, significantly reducing capital requirements
  • A focus on value over volume, leading to high margins
  • Uses cash to acquire other businesses and pay dividends

Culture

  • Decentralised business model, with local business units given autonomy to make decisions
  • Innovative and entrepreneurial
  • Strong track record of bolt-on acquisitions

Danaher Corp (New York Stock Exchange, S&P 500) – the picks and shovels of biological therapies

Charlie-Examples-800x200-new.jpgIn the California gold rush, it wasn’t the gold miners who made the most money. It was the companies supplying the picks and shovels. By providing the equipment to research and create biological drugs, Danaher has positioned itself as the picks and shovels provider to the medical science industry. Demand for these therapies is exploding, but picking winners isn’t easy. Danaher’s broad product portfolio means it could be well positioned to benefit, without bearing the risk of drug development.

Why I like Danaher

Resilience

  • Serving defensive industries – healthcare and diagnostics
  • Recurring revenue from single-use consumables linked to capital equipment
  • Widely diversified by therapy area

Moat

  • Installed base of critical equipment leading to high switching costs
  • Leading positions in highly regulated markets
  • Broad product portfolio and global scale

Cash

  • A focus on technologically advanced products, sold at high margins
  • A focus on cash, not just revenue and profit
  • Uses cash mainly to acquire other businesses

Culture

  • Culture of operational excellence underpinned by a unique way of doing business (the Danaher Business System)
  • High performance standards and accountability
  • Disciplined approach to acquisitions and disposals, which has raised business quality

Diageo plc (London Stock Exchange, FTSE 100) – brands with heritage

Diageo-Welcome.jpgConsumer tastes and preferences can be fickle, but Diageo’s brands have stood the test of time. Guinness originates from the 18th century, while Johnnie Walker Scotch Whisky is over 200 years old. The heritage associated with many of Diageo’s brands is immensely valuable and difficult to replicate, while its global footprint means they can be enjoyed far and wide. With premium spirits taking a greater share of consumer spending, Diageo looks well positioned to capitalise.  

Why I like Diageo

Resilience

  • Consumers tend not to cut back much on alcohol, even in difficult times
  • Its products are an occasional purchase, and targeted mainly at higher-income consumers
  • A well-diversified portfolio– over 200 brands sold into more than 180 countries

Moat

  • Exceptional portfolio of brands, supported by multi-billion pound marketing budgets
  • Difficult to replicate distribution network, supply chain and global sales force
  • Significant economies of scale

Cash

  • Brands with pricing power and high margins
  • Scale means it can extract favourable payment terms from suppliers
  • Uses cash to fund dividends, share buybacks and bolt-on acquisitions

Culture

  • Long term and relatively conservative
  • Has successfully evolved the portfolio, through disposals of weaker brands and acquisitions in fast-growing categories like tequila
  • More bureaucratic than I would like*
*Bureaucracy is a consequence of Diageo’s size and regrettably common in the consumer goods industry. However, I believe the disadvantages (e.g. slower decision-making and less agility) are more than outweighed by the benefits scale brings and the strength of Diageo’s brand portfolio.

Diploma plc (London Stock Exchange, FTSE 100) – a niche industrial

Diploma4-Charlie-800x200.jpgHave you ever paid attention to those big Caterpillar machines on construction sites? They cost hundreds of thousands of pounds and, if they break, work grinds to a halt. Diploma supplies components to repair those machines and that’s just one small part of its business, patiently built up through two decades of shrewd acquisitions. Diploma focuses on delivering low-cost but critical products, with each acquisition further diversifying the portfolio and entrenching its niche market positions.

Why I like Diploma

Resilience

  • Supplying mainly low-cost, critical components
  • Well diversified by customer, supplier, sector and geography
  • Products unlikely to go out of fashion, e.g. seals for heavy mobile machinery

Moat

  • Leading positions in niche markets, underpinned by distribution networks that are difficult to replicate
  • Provides value-add services, like next-day delivery and bespoke components
  • Exclusive and semi-exclusive supplier relationships, meaning customers often have few alternatives

Cash

  • A middleman connecting customers and suppliers, not a manufacturer, so capital is not tied up in factories
  • Healthy margins and fast-moving inventory
  • Prodigious free cash flow, used mainly to fund acquisitions

Culture

  • Highly decentralised collection of separately managed businesses
  • Agile, entrepreneurial and accountable with fast-decision making
  • Highly astute acquirer with strong returns on capital

Experian plc (London Stock Exchange, FTSE 100) – a critical cog in the global economy

Experian-Quality Shares Portfolio.jpgIf you’ve applied for a mortgage, bought a car, took out insurance, or even just shopped online, you likely – but perhaps unknowingly – crossed paths with Experian. It is the world’s largest credit bureau – it has extensive data on you and me, from our loan and credit card payments to bank accounts. This data is used by businesses in lending decisions, to verify online purchases and combat fraud. With more data guiding more decisions, the uses for Experian’s solutions are expanding all the time, providing no shortage of opportunities.

Why I like Experian

Resilience

  • High proportion of recurring and repeat income
  • Experian’s data is used by lenders to manage existing debts, not just for new loans, sustaining demand when the economy weakens
  • Widely diversified by customer, industry and geography

Moat

  • Software deeply embedded in customer’s operations, leading to high switching costs
  • Deep and broad data sets, including some proprietary
  • Long-term, trusted customer relationships

Cash

  • No factories or heavy machinery
  • Receives payment from customers before paying suppliers
  • Prodigious free cash flow, used for bolt-on acquisitions, dividends and share buybacks

Culture

  • A good track record of innovation and new product development
  • A willingness to invest for the long-term
  • Historically strong operational execution

Idex Corp (New York Stock Exchange, S&P 500) – a unique industrial with an entrepreneurial culture

Idex-Quality Shares Portfolio.jpgIf you eat chocolate, it quite possibly passed through an Idex pump at the factory. And if you were ever in a car accident, emergency workers may have used one of Idex’s rescue tools to save your life. Products like these make up Idex’s unique and diverse portfolio of highly engineered solutions. Combined with an entrepreneurial culture embracing agility, autonomy and customer intimacy, it adds up to a powerful mix, in my opinion.

Why I like Idex

Resilience

  • A mix of cyclical and more defensive end-markets
  • Remained highly profitable and cash generative even in the depths of the 2008/09 financial crisis
  • Widely diversified by customer, industry and geography

Moat

  • Number 1 or 2 positions in well-defined niches
  • Highly-engineered products – they do not operate in commoditised markets
  • Products are critical to the customer’s operations

Cash

  • Asset-light manufacturing, with low capital requirements
  • A focus on cash, not just revenue and profit
  • Uses cash mainly to acquire other businesses

Culture

  • Entrepreneurial and decentralised, with local business units given autonomy to make decisions
  • A laser focus on prioritising investments behind the best opportunities
  • Disciplined approach to acquisitions and disposals, which has raised business quality

Microsoft Corporation (NASDAQ) – retaining relevance in a fast-changing world

Microsoft-Quality Shares Portfolio.jpgTechnology trends can change fast, and many former tech darlings – like Kodak and Nokia - ended up losing relevance. Microsoft’s business model has stood the test of time. From its cloud computing platform (Azure) to Windows and Office 365 – its products and services remain critical. A key reason Microsoft has endured, while many other (arguably more innovative) tech firms have withered, is the power of its distribution network and dominant market positions, in my view. With these strengths, and with digital spending likely to grow, I believe Microsoft can continue to prosper. 

Why I like Microsoft

Resilience

  • Mission-critical products and solutions
  • High proportion of recurring income
  • Exceptionally diverse

Moat

  • Dominant market positions, formidable distribution networks and strong brands
  • Software deeply embedded in customer’s operations, leading to high switching costs
  • Broad product portfolio, global salesforce and economies of scale

Cash

  • No factories or heavy machinery
  • Design software once and sell it many times over
  • High proportion of up-front payments from customers

Culture

  • Strong operational execution
  • Has successfully evolved and adapted to stay relevant and exploit new growth opportunities
  • Cultural shift under CEO Satya Nadella to embrace change and encourage innovation

MSCI Inc. (New York Stock Exchange, S&P 500) – the doyen of financial data and indexes

MSci-Quality Shares Portfolio.jpgWith over $10 trillion in assets benchmarked to more than 250,000 of its indexes, MSCI commands an unrivalled position in financial markets. I find it very hard to see that changing – after all, any investment manager wanting to track the performance of world equities has little option but to pay MSCI for the privilege. MSCI is also a leading supplier of sustainability and climate data, which is being used in an increasing number of investing strategies and is driving a rich vein of opportunities.

Why I like MSCI

Resilience

  • MSCI’s indexes and data are mission-critical
  • High proportion of recurring income, mostly from subscriptions (not linked to market levels)
  • The breadth of MSCI's indexes, data and solutions reduces reliance on any one part of the financial system

Moat

  • Very strong brand and reputation, especially in indexes
  • It is costly and disruptive for asset managers to switch benchmarks
  • Long-term customer relationships and direct sales force

Cash

  • Minimum capital requirements to sell indexes and data
  • A highly scalable business model with very attractive margins
  • Uses cash to fund dividends, share buybacks and bolt-on acquisitions

Culture

  • Innovative, entrepreneurial and lean
  • A strong track record of operational execution
  • Management with skin in the game and an ownership mindset

RELX plc (London Stock Exchange, FTSE 100) – a data geek

Relx-Charlie-800x200.jpgHow can a car insurer give you an accurate quote in an instant? The answer is data, and lots of it. RELX is a leading provider of such data – 98 of the top 100 personal insurance companies rely on it. Many other professionals, from lawyers to academics, also depend on RELX’s data every day to make critical decisions. As the data revolution takes hold, RELX could be well placed to capitalise.

Why I like RELX

Resilience

  • Supplying must-have information, required in good times and bad
  • High proportion of recurring/repeat income, often from multi-year contracts
  • Well diversified by customer, sector and geography

Moat

  • Dominant positions in specialist niches
  • Deep and broad data sets, some proprietary
  • Software deeply embedded in customer’s operations, resulting in high switching costs

Cash

  • No factories or heavy machinery
  • Receives payment from customers before paying suppliers
  • Prodigious free cash flow, used for bolt-on acquisitions, dividends and share buybacks

Culture

  • Sensible, conservative management team, whose words have aligned with actions
  • Good track record of new product development
  • Strong history of bolt-on acquisitions and disposals that have raised business quality

Roper Technologies Inc. (NASDAQ) – a rare vintage

Roper-Charlie-800x200.jpgI see Roper like a fine wine collector that focuses only on the best vintages. But instead of wine, it acquires niche software and technology businesses – from school administration software to wireless sensor networks – and provides an environment where they can flourish. Over time, I expect Roper to use the cash flow from these businesses to add more high-quality companies to its collection.

Why I like Roper

Resilience

  • Mission-critical products, required in good times and bad
  • High proportion of recurring revenue, strong customer retention
  • Widely diversified by customer and industry

Moat

  • Dominant positions in well-defined niches
  • Software deeply embedded in customer’s operations, resulting in high switching costs
  • Long-term and high-touch customer relationships

Cash

  • Ability to grow without consuming cash
  • Obsessive focus on cash flow
  • Uses cash to acquire other businesses

Culture

  • Highly decentralised collection of separately managed businesses
  • Long-term focus, high standards and a culture of trust
  • Highly disciplined approach to acquisitions and disposals, which has raised business quality

Texas Instruments (NASDAQ) – the ‘Amazon’ of analog chips

Texas-Instruments-Quality Shares Portfolio.jpgThe average modern car has about 1,500 chips, used to control anything from emissions to driver assist systems. In electric cars, the number of chips is closer to 3,000. In fact, wherever you look, from personal electronics to industrial appliances, more chips are being used. Texas Instruments – the ‘Amazon’ of analog chips – looks uniquely placed to me to exploit these trends. With compelling competitive advantages and an exceptionally broad product portfolio, I believe few companies stand to benefit more from the chip revolution. 

Why I like Texas Instruments

Resilience

  • A cyclical industry, but Texas Instrument’s strong margins and balance sheet have historically helped it weather downturns
  • Diverse chip portfolio not dependent on any single technology trend
  • Products have a long shelf life, significantly reducing risk of obsolescence

Moat

  • In-house manufacturing, resulting in substantial cost advantages and control of supply chain
  • Broadest chip portfolio and largest salesforce in the industry
  • High switching costs once chips have been embedded in product designs

Cash

  • Highly automated manufacturing leading to strong margins and cash flow
  • Aims to maximise growth of free cash flow per share over the long term
  • Making large manufacturing investments which will weigh on free cash flow in the short term, but should strengthen long-term competitive advantages and cash generation

Culture

  • An ownership mindset, that prioritises long-term investments
  • High expectations, and a focus on continual improvement
  • Very thoughtful about capital allocation, with an exceptional track record

Topicus Inc. (TSX Venture Exchange) – an exceptional acquirer

Topicus-Quality Shares Portfolio.jpgThe great thing about niches is you're very unlikely to get a Google or Amazon coming along with a new solution to enter the market. It simply isn’t worth their effort. The software businesses Topicus owns are about as niche as they come, with each specifically focused on developing software for a particular industry, from education to healthcare. Added to this is a tried and tested approach to acquisitions, honed by parent company Constellation Software over decades. Topicus was spun out of Constellation Software in 2021.

Why I like Topicus

Resilience

  • Low cost, mission-critical products, required in good times and bad
  • High proportion of recurring revenue, strong customer retention
  • Widely diversified by customer and industry

Moat

  • Software deeply embedded in customer’s operations, leading to high switching costs
  • Long-term customer relationships
  • Niche market focus, significantly reducing the threat of new entrants

Cash

  • Ability to grow without consuming cash
  • Obsessive focus on cash flow
  • Uses cash to acquire other businesses

Culture

  • Highly decentralised collection of separately managed businesses
  • Entrepreneurial, data-driven and extremely high standards
  • Very disciplined approach to acquisitions, paying modest valuations for privately-owned businesses

Wolters Kluwer (Euronext Amsterdam) – death, taxes and regulation

Wolters-Quality Shares Portfolio.jpgThey say there are two certainties in life: death and taxes. Wolters Kluwer deals with both. Over a million accountants and lawyers rely on its software, while millions of clinicians across the globe use its information and tools to diagnose and treat diseases. Wolters also offers governance, risk and compliance solutions to help with things like regulatory reporting – not exciting admittedly, but if there is a third certainty in life it’s probably increased regulation. To my mind, that’s a pretty good recipe for resilience.

Why I like Wolters Kluwer

Resilience

  • Mission-critical products and services, serving mainly defensive markets like healthcare and tax
  • High proportion of recurring income
  • Widely diversified

Moat

  • Strong positions in specialist niches
  • Software deeply embedded in customer’s operations, leading to high switching costs
  • Long-term, trusted customer relationships, supported by a global salesforce

Cash

  • No factories or heavy machinery
  • Receives payment from customers before paying suppliers
  • Prodigious free cash flow, used for bolt-on acquisitions, dividends and share buybacks

Culture

  • Sensible, conservative management team
  • Good track record of new product development
  • Strong history of bolt-on acquisitions and disposals that have raised business quality

 

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Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 

The details

Type
Discretionary Share Portfolio
Minimum investment
£10,000
Geography
Global
Initial charge
Nil
Annual custody charge
0.25%
Annual management charge
1%
Next deadline
15 May 2024 (5pm)
Last updated: 8 April 2024