Morningstar Magazine - June/July 2018 - 96

Investors

Chautauqua International Growth CCWIX
Morningstar Category

Foreign Large Growth

Expense Ratio (%)

0.95

Prospectus Benchmark

MSCI ACWI ex USA

Source: Morningstar. Data as of 04/30/2018.

Chautauqua Global Growth CCGIX
Morningstar Category

World Large Stock

Expense Ratio (%)

0.95

Prospectus Benchmark

MSCI ACWI

Source: Morningstar. Data as of 04/30/2018.

There are a couple of starting points. One
is finding companies linked to key trends, which
include a burgeoning middle class, aging
populations, improved productivity and efficiency,
information technology, and healthcare.
Then, there are screens for companies with
historical growth and profitability. Here,
the team uses a variety of metrics, sometimes
screening the entire market and sometimes
narrowing in on sectors or countries. "Sometimes
the data will surprise us and tip us off to
a trend," Beitner says.
When a company meets both the trend and
screening requirements, the team digs in. First,
team members assess its competitive advantage,
which may be rooted in its management,
for example, or products. Then, they evaluate its
quality, which is reflected in aspects such as
conservative accounting, balance sheet strength,
and shareholder alignment. Then, they consider
the effects of where a company does business-
its geographic footprint and currency exposure.
Valuation-forecasting cash profits and comparing
those to the current cost of the business-
is the last step in the stock-picking process, the
point at which one team member takes responsibility for a name. At this step, a stock goes
into the portfolio or onto the watchlist. "We don't
want to eliminate interesting companies that

Morningstar June/July 2018

might look expensive today," Beitner says,
"so we only do detailed valuation on companies
that have been thoroughly vetted."
When it comes to putting the pieces together,
sector, country, and regional weightings are
not tethered to a benchmark. The team considers
correlations among sectors and similarities
between countries. South Korea and Germany, for
example, are both industrial exporters that
are sensitive to currency movements, so may be
more alike than their regional locations
suggest. This nuanced analysis allows the team
to manage portfolio risk without sacrificing
best ideas simply because they fall into a certain
sector or region. Team members are also mindful
of currency impacts and prefer to manage
exposure through security selection, as hedging
can be expensive and complicated.
The goal is to mitigate risk with appropriate
diversification, while remaining strictly selective
about stocks. Chautauqua International
Growth held only 29 stocks at the end of 2017,
while Global Growth held 44-almost all the same
foreign stocks, plus U.S. picks.
Picking and Sorting

Beitner holds up Chinese online travel agency
Ctrip CTRP as an example of the process.
As a result of a relaxation of travel restrictions and

an aging population interested in new experiences,
travel in China is a burgeoning trend. He
believes that Ctrip is well-positioned to ride this
trend, as it enjoys economies of scale and
strong leadership and is a well-known trusted
provider that appeals to new travelers.
Healthcare has been a relatively large weighting,
reflecting the prospects of companies that
have breakthrough or cost-containing products,
including Novo Nordisk NVO, a leader
in diabetes therapies and one of the largest
positions as of year-end. More recently, the team
has been adding financials that stand to
benefit from rising rates, including TorontoDominion Bank TD:CA and Singaporebased DBS Group D05:SG. Global conglomerate
Fanuc FANUY, the world's leading manufacturer
of industrial automation equipment, was
a first-quarter purchase. It is expected to benefit
from a long-term trend toward automation,
driven by labor shortages and wage inflation
in the developed world.
The team regularly ranks the portfolio in terms
of profitability, growth, and valuation, and
assesses how adjusting positions would affect the
overall risk profile. Team members may
rebalance to achieve optimal conviction weights,
or swap in new ideas. Anyone on the team
can call for a review of a holding. An otherwise

Table of Contents for the Digital Edition of Morningstar Magazine - June/July 2018