One on one with Barry Dargan

Q: Tell us about Intermede, what are your core investment philosophies?

A: Intermede is a boutique global equity fund manager. We are focused solely on highly quality long-term growth business that we think will reliably compound their earnings over many years and produce great outcomes for investors.

We look for companies that in addition to having great qualities and a strong moat to their business, have a cheap price. So, we want to buy them at a price that essentially undervalues all of that growth. And so, we have a strong valuation discipline in addition to our quality growth focus.

Q: Can you explain the process behind the portfolio construction?

A: We feel that a company that will reliably compound its earnings growth over time has to have some kind of long-term advantage that can't easily be defeated by competitors. So, we call that "sustainable competitive advantage," and that's really the first thing that we look for in any company that we're going to invest in.

We have to find something about the business that really sets it apart and gives you this ability to out-compete any other companies in its area.

Of course, then we deep dive into the numbers to see if this is reflected in the fact that it's got best-in-class margins and it meets our criteria of long-term growth and return. The next thing we want to look at is management and make sure that management is of sufficiently high quality and calibre to be able to execute on the growth plan that we're looking for with the company.

If all of that checks out, then we say, "Okay, that's the company that we want to own." And then, it comes down to what's the right price.

Q: Have the rules of investing changed for investors within the global equity space over the last two years?

A: I don’t think the rules have changed as such, but I do think the opportunity set has changed.

I think if you had used the full guiding principles that we have in terms of finding great quality companies with great managements and not paying too much for them, that will work in pretty much any environment, but the opportunity set clearly does change. 

If you think back, when I first started out, the sort of thing that we were looking at was retailers as being an interesting concept, that they could roll out the box-style stores over many territories. That concept is much less relevant I'd say these days in the world of internet and e-commerce, because they've been made somewhat obsolete by a change in how the world works. You always have to be on top of how things are changing within the investment landscape. But within that, I would say that the rules of investing pretty much remain the same.

Q: With inflation and interest rate risk currently being hot topics, does Intermede factor these economic inputs into stock selection?

A: We certainly don't try to predict things like interest rates or inflation rates, or oil prices or any of these things. We certainly are cognisant of the environment, and we will definitely want to model these changes and do some scenario analysis with the stocks that we own. When you look at the current environment, inflation is a worry.

But all of this will pass and will normalise in due course. That said, there is an underlying rate of inflation that is likely to be higher than it was pre-COVID. And I think this is what the market is really focused on, because it's that long-term underlying rate of inflation that really gets to set interest rates, if you like, over the long term. So, if interest rates go up, you tend to see capital asset prices coming down. That includes equities. 

So of course, we look at this and are cognisant of it. We don't try to predict, however, what the long-term inflation rate is or whether it's going to go up or down. That's outside of our remit.

But what we are looking at is portfolio of companies that are in a very strong position in terms of their business models to be able to pass on pricing. They are leaders in their industries, they are the strongest companies with very good pricing power.