Nick Griffin’s formula for double-digit returns (plus 13 stocks Munro is backing for the long-term)

Please note, that this interview was filmed on 26 February 2024

Fund profile

• Name of fund: Munro Global Growth Fund (ASX: MAET) and Munro Concentrated Global Growth (ASX: MCGG)

• Asset Class: Global equities

• Investment objectives:

  • MAET is an actively managed ETF that invests in, and therefore tracks the performance of the Munro Global Growth Fund, our flagship global equity fund. MAET provides convenience and simplicity for investors to gain access to an actively managed portfolio of 30-50 global growth equities.

  • MCGG is quoted on the ASX as an actively managed ETF. It invests in, and therefore tracks the performance of the Munro Concentrated Global Growth Fund. Investment returns first. MCGG.ASX aims to take the traditional but more volatile investment path by being fully invested in the market across 20-40 long positions.

• Link to fund pages: MAET and MCGG

Griffin's formula for double-digit returns

The narrative around growth and AI is often presented in a singular dimension; with rates set to come down and AI the future of everything, growth stocks are sure to rally.

While those two planks - rates and technological advancement - are important, that narrative does not tell the whole story.

As Nick Griffin, Chief Investment Officer at Munro Partners, puts it, "It's important for everyone who is looking at equity markets to realise that equities are not like other asset classes. It's a game of very few winners and lots of losers".

So, how does Giffin sort the winners from the losers? He's looking for companies that have EPS or cashflow growth above 10%, and revenue growth of more than double GDP.

"For a company to grow its revenue more than double GDP, or earnings double-digit sustainably for a long period of time, they've normally got to be doing something pretty special" says Griffin.

He goes on to add that Munro does not think about growth in terms of macroeconomic growth. Rather, Griffin and his team are on the hunt for structural growth, "because that's going to create the few winners that are going to give you double-digit returns".

So, what structural drivers does Griffin see right now? While artificial intelligence and tech are among them, he also sees opportunities in semiconductors, climate, consumer discretionary, and payments, to name but a few of the areas in which he is hunting.

Wake up call for growth as stocks go back to following earnings

Griffin has been looking at growth opportunities for 25 years and acknowledges that in 2022 and 2023, when rates went from zero to five percent, "that was a good wake-up call for growth equity investing... arguably growth had got ahead of itself".

Now, however, he sees a better environment for growth investing because rates have normalised, and central banks have levers to pull if things slow down. Griffin believes the setup for growth investing is good "because it's unlikely that rates go from five to 10 from here. They probably go from five to four, and the earnings growth of these companies has continued all the way throughout this period and, if anything, is accelerating".

"All you've seen in the last 12 months is, as soon as rates stopped going up, stocks just went back to following their earnings, which is what they do best", adds Griffin.

Global stocks that make the cut

In his career, Griffin has seen numerous structural growth drivers, including the shale gas revolution, the launch of the internet, the mobile boom, the shift from 4G to 5G, and now the advent of AI. He sees AI as a game changer, saying that "it's going to change the way we work, it's going to change the way we do everything".

"And our job right now is to position the fund for the big structural winners from AI, and that's the big one that we're focused on today."

In terms of names that Griffin likes, he mentions:

• Amazon (NASDAQ: AMZN)

• Microsoft (NASDAQ: MSFT)

• Google (NASDAQ: GOOGL)

As the notable cloud service providers, and:

• Nvidia (NASDAQ: NVDA)

• TSMC (NASDAQ: TSM)

• ASML (NASDAQ: ASML)

As the key equipment providers.

While AI and tech comprise a significant part of the Munro portfolio, as mentioned above there are other areas in which Griffin is finding suitable structural growth drivers. He likes Lululemon (NASDAQ: LULU) and Chipotle Mexican Grill (NASDAQ: CMG) in consumer discretionary, and Visa (NASDAQ: V) and Mastercard (NASDAQ: MA) in payments - both of which he has held since day one in the Munro Global Growth Fund.

Other key themes discussed

In the interview above, Griffin delves deeper into the process for identifying the "winners" of the structural growth drivers he and his team have identified, provides a case study in Nvidia and explains why it is "not an expensive stock today", shares a little about his process for exiting a position, and highlights two niche growth areas that could have massive upside.

Finding long-term winners

Munro identifies sustainable growth trends that are under-appreciated, not well understood and mispriced by the market. Find out more by visiting their website.

This article first appeared on Livewire Markets.