Finding sustainable growth in a global value chain

The Loomis Sayles Growth Equity Strategies (GES) Team is an active, long-term manager who invests in high-quality businesses with sustainable, profitable growth only when they are trading at a discount to the Team’s estimate of intrinsic value. To do this, their process involves rigorous and disciplined analysis of the entire global value chain to identify long-term winners able to defend and grow their competitive advantage over time.

For example, the video depicts the big business of beer and the beverage industry’s global value chain to identify which areas and businesses hold the most value potential for the GES Team’s long-term focused portfolios. From the agricultural suppliers, all the way through to the brewers, the distributors and the retailers, the business has many moving parts. A link in the chain that may have a smaller share of the revenue could command the largest share of profits, says Aziz Hamzaogullari, CFA, Founder, CIO & PM, Growth Equity Strategies at Loomis, Sayles & Co. 

To find out who captures the greatest value in any global value chain, the GES Team’s proprietary seven-step investment process uses an approach called global profit pool analysis to help determine:

• Competitive rivalry within an industry, which ultimately provides insight into how an industry works.
• How an industry creates value.
• Who captures that value.

The GES Team believes a focus on long-term secular drivers and sources of sustainable growth—dynamics unlikely to change for five years or longer—is critical to discerning a company’s growth potential. The evolution of paper money to digital payments, the migration from brick and mortar retail to e-commerce, the shift from traditional to online advertising, and the transition to EVs, are all examples of secular growth drivers.

Evidence shows that only about one percent of the businesses out there can sustain above-average growth rates over a decade or so. That means the types of businesses the GES Team looks for are very rare. Because the GES Team approaches investing as if they are buying into a private business, a long investment horizon is central to their philosophy. As a result, low turnover is a hallmark of their strategies.