A second category would be businesses that serve a niche within a given industry. These are often not the biggest players in the sector, but they play a critical role. For example, we own several offshore oil drillers: Noble, Valaris, Transocean, and Borr Drilling. Their combined market capitalisation is less than $20 billion—or about a tenth the size of Shell. We own the latter as well, but it doesn’t mean we can’t find equally compelling ideas towards the other end of the market cap spectrum.
A final category might be termed “local heavyweights”. These are companies that end up in the middle only because the global equity market is so massive. This basket includes AIB and Bank of Ireland, which dominate the Irish banking system. It also includes a group of Korean financials with similarly outsized local influence: Shinhan Financial, Samsung Fire & Marine Insurance, and Hana Financial. Another local heavyweight is Jardine Matheson, which controls businesses across Asia. These companies may be middleweights on the world stage, but they are not middling by any means.
At a time when geopolitical and macroeconomic risks only seem to be intensifying, our midcap holdings provide an important source of diversification. While none of these shares are immune to global stockmarket volatility, the key variables that really matter for these businesses tend to be much more “micro” in nature, usually limited to specific industry or local market developments. Through our intensive research efforts, we can get to know these companies extremely well and develop the conviction to be patient—perhaps even increasing our stake—during uncertain times.
Click here to find out more about our approach, and the importance of diversification in the coming decade.
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