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Carefully Selecting Your Portfolio Investments Thumbnail

Carefully Selecting Your Portfolio Investments

At Veritable Investment Management, we think beyond stocks and bonds that are bought and sold based on prices set by the mood of the markets. When we invest your capital, we are purchasing a share of a business, a building, or another type of asset that generate steady cash flows, almost regardless of what’s happening in the broader economy or with stock prices.

The cash flows generated by your investments produce returns that, step by steady step, bring your goals within reach.

English philosopher John Ruskin got it right when he said, “Quality is never an accident; it is always the result of intelligent effort.” While quality takes many forms and can be measured in different ways, it inevitably takes hard work to build something of lasting value in an ever-changing world.

Our team carefully selects investment partners to scour the globe and find high-quality investments that make up the bulk of your portfolio. We never forget our investors are buying a real piece of every business, building, loan or other asset in our portfolios. Overall, we favour assets that deliver predictable cash flows and skillfully allocate that cash between reinvesting it for future growth and returning it to owners like you.

Here are three examples of companies that earned high marks for quality from our team.

L'Oréal: beauty performs through all markets

Founded by a chemist in 1909 to sell blond hair dye, L’Oréal has stood the test of time. In fact, if you look at the past 30 years of this French cosmetics firm’s revenues, it’s hard to tell when the economy hit rough patches. On average, over this entire period, the company grew sales by 6% per year and profits by 9% a year to become the largest cosmetics company in the world today.

A $1,000 investment in L’Oréal stock 30 years ago would be worth $37,000 today. The past doesn’t guarantee the future, but long-form momentum can help propel you towards your objectives.

How has L’Oréal accomplished its impressive results? The firm understands our desire to treat ourselves well, no matter the cost. It’s well aware of studies that show spending on beauty is among the last personal budget items to get cut in tough times. And it has built brands extending from mass market to professional studios to high-luxury cosmetics to attract the widest possible range of consumers.

L’Oréal invests heavily in advertising, currently positioned as the third-largest advertiser in the world. It also spends more than $1 billion annually on research and development – twice its nearest competitor. A huge additional strength is the company’s massive global distribution network, with L’Oréal brands available at more than 450,000 stores around the world.

Urbaser: waste management is always essential

It’s not a household name and its business isn’t glamorous, but Urbaser has found a niche that never goes out of style. Founded in 1990 and based in Madrid, it’s an environmental management giant that keeps cities clean for more than 70 million people in 21 countries. Every year, Urbaser collects 11 million tons of waste, sweeps eight million kilometres of streets, and tidies up 25 million square metres of parks and gardens.

The company maintained $2 billion in annual revenues throughout the COVID-19 pandemic, because essential services must keep going – whatever else is happening in the world.

What is Urbaser getting right? It knows its services will always be needed, but it nevertheless locks in multi-year contracts that increase its fees annually as consumer prices rise. This protects Urbaser’s cash flows and margins during periods of high inflation. Partly as a result of this strategic decision, Urbaser has been growing faster than expected and contributing positively to investors’ returns.

Champion: we love and pamper our pets

Just as garbage gets hauled no matter the economic conditions, spending on pets is durable. Pet owners are known to trade down to store brands for their own groceries before they trade down for their pets. Edmonton-based Champion Petfoods is benefiting from the fast-growing market of consumers pampering their pets, with pet ownership increasing during the pandemic.

Founded 40 years ago with five employees, Champion grew to become one of the two largest private equity holdings in the $100-billion Healthcare of Ontario Pension Plan (HOOPP) portfolio.

How has Champion set itself apart? Canada’s third-largest pet food brand sells only natural pet foods, including the Orijen and Acana brands. Some Orijen ingredients labels look healthier than many packaged human foods – for example, with 80% whole proteins, including poultry and fish, and 20% whole fruits and vegetables, including apples, cranberries, pumpkin and carrots. There are no chemical additives or preservatives.

The firm’s commitment to high-quality, premium pet food has been a recipe for success, and today two-thirds of its sales are outside Canada, including China where it is a top brand. I’m happy to report that Mars, the global leader in pet food, purchased Champion earlier this year. Mars had the deep pockets to buy Champion at a price that reflects its bright future, and the firm has the distribution capabilities to take Champion to the next level. During the time that Veritable owned Champion, it made an important impact on returns.

Our focus on high-quality assets pays off

L’Oréal, Urbaser and Champion have all had positive impacts on Veritable Investment Management portfolio returns and are good illustrations of how we partner with other leading investors – Hamilton Lane and Kensington Capital Partners – to acquire ownership stakes in high-quality businesses.

Whether it’s beauty, garbage or pets, and whether a company is traded on an exchange or privately held, we invest your capital deliberately and construct our portfolios strategically.

We’re mindful of the characteristics of each asset and its associated risks, and we continuously evaluate our investments to make sure they remain on track. The management approach of our Veritable Funds portfolios is designed to generate the returns needed and guide investors toward achieving their financial goals.

Live life confidently.

Veritable Wealth Advisory