Investment Theses

Railroads played an important role in developing North America. Two centuries later, they remain critical to the economy. The US railroads account for ~40% of long distance freight volumes and haul one-third of the country’s exports. We expect railroads will remain essential for decades to come.

Ares Capital Corporation (ARCC) has been a constituent in our portfolios for over eleven years. Ares Management, a large global alternative asset manager, created ARCC as a direct lending company in 2004. Since inception, ARCC generated 12% annualized total returns for its shareholders. This compares to 10% by the S&P 500 over the same period.

Broadridge delivers mission critical services that are deeply integrated in the workflows of banks and brokers. Despite its indispensable role, Broadridge’s services represent only a small part of their customers’ cost structure. This combination translates into an attractive business model. Broadridge is a recent addition to our portfolios. We will explain our investment rationale below.

Rentokil Initial (RTO) provides pest control and hygiene services worldwide. RTO merged with Terminix, a US competitor, in December 2021. RTO expects the transaction to close in Q3 2022. Following this transaction, RTO will become the largest pest control company in the world with 26% market share in the United States, representing more than half of the global market.

Founded in 1828, McKesson (MCK) is one of the three major drug distributors in the United States, along with AmerisourceBergen and Cardinal Health. They distribute medicines from manufacturers to pharmacies. This industry is characterized by significant entry barriers such as high requirements from the Food and Drug Administration (FDA). MCK shows limited cyclical sensitivity with stable sales even during the financial crisis in 2008/2009. MCK earns a percentage of the value it distributes from generic drugs and a fixed value per unit from branded drugs.

A merger between Quintiles and IMS in 2016 resulted in IQVIA. We evaluated the merger as a positive development and became shareholders in 2018.

ASML was founded in 1984 as a joint venture between ASM International and Philips. The company spun off in 1988 and has since developed into one of the world’s leading suppliers to the chip industry. In our investment thesis we share why this company is included in the portfolio.

Novo Nordisk (NVO) has been part of our portfolios since 2009. The company is the world leading producer of insulin medication. NVO has been led by Lars Jorgensen and since his appointment in 2017 the shares have achieved a return of 20% per year.

In November 2020 S&P announced a merger with IHS Markit. While we have a positive informed opinion about this combination, the market did not react favorably.

There is a strong trend towards electronic payments at the expense of cash and check transactions and with the high remaining volume of traditional payments, this trend is set to continue for years to come.