American fund manager William Blair has named its top-three investment themes for 2013, nominating attractive valuations in China, the US domestic housing market and the stabilisation of the European financial sector as the stories to watch.

Executives from the Chicago-based firm, which has a 70-plus-year history in investment markets, were in Australia in February to speak with institutions and consultants about the company, which has around US$50 billion under management across US and global equities, both international and emerging market.

The focus of the discussions in Australia was the international funds, which comprise around 60 per cent of its funds under management.

William Blair, which differs from many firms in that it is 100 per cent employee owned, set up an Australasian office late last year under the leadership of Alex Francois and is now looking for mandates in the institutional space.

Kenneth J McAtamney, a principal of the company, told I&T News that the “biggest phenomena” he had observed for 2013 was the “stability of the Chinese economy in a slow-growth environment”.

“There is a structural change there and they are moving from an infrastructure and capital-intensive economy to more consumer based,” he said. “2012 was an important year in terms of how they managed both of those things, so now we think that China – which we haven’t been exposed to over the last few years – is now attractive.

“Valuations in that market have been corrected and companies which had been trading at 25-times earnings are now trading at around half that, so it is now more reasonable and the timing is very different in terms of risk and reward.”

Home and abroad

On the US domestic economy, McAtamney said the William Blair view was that the economy was “stable and stronger.”

“We look at the housing market and we see an upside for suppliers and retailers selling mortgage goods,” he said. “We think it has a long way to go, but we think this is material.”

In Europe, meanwhile, McAtamney sees the stabilisation of the bank sector as being “a lot better than it has been on the surface”.

“European banks have been out of favour for the last five years or so, but now we see that valuations are more attractive,” he said.

According to McAtamney, the William Blair investment philosophy is to look at companies “which can generate their own long-term sustainable competitive advantage.”

In accessing the main themes of 2013, the fund manager was not limited by geography, looking favourably – for example – at European drinks companies whose home markets were stagnant, but which were developing strong businesses in China.

“We are very much focused on a bottoms-up approach to investing,” he said. “Our start point is not to find an economy to invest in. The start point is whether this is a great company and can they sustain their competitive advantage.

“We look for companies which can generate returns and strong cash flows which they invest back into their own business to fuel their own growth, regardless of what is happening in the macro economy.”

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