<strong>By: <span class="x_1490040431colour"><span class="x_1490040431size">Duggan Matthews, Chief Investment Officer at Marriott</span></span></strong>

At Marriott, our philosophy has always been to buy high quality, diversified and resilient companies. We take a long term view – “is this a company that we want to hold for 10 years or more?” This strategy has served our investors well through the current COVID-19 crisis and over the long term, as highlighted by the good performance of our First World Equity Feeder Fund:

<img class="aligncenter size-full wp-image-142478" src="https://www.cover.co.za/wp-content/uploads/2020/06/Screenshot-2020-06-03-at-14.41.15.png" alt="" width="686" height="75" />

Below we highlight five of the core characteristics that we look for in any business that we invest in and discuss some of the quality companies we own on behalf of our investors, and how they are successfully navigating the current COVID-10 crisis:

<h3><strong><u>Diversification</u></strong></h3>

<strong><em>Procter & Gamble</em></strong> have seen first-hand the benefits of a diversified product suite during these times. With government-mandated lockdowns in place across most of the world and an increase in working from home, their grooming products, which includes Gillette as well as Venus, have experienced revenue declines. In contrast, their Health Care and Fabric & Home Care categories saw organic sales increases by 9% and 10% respectively. This diversification has enabled them to grow overall earnings per share by 10% quarter-on-quarter.

<h3><strong><u>Market Leadership</u></strong></h3>

<strong><em>Visa</em></strong>, the number one global credit card network, has recently been included in the Marriott portfolios for their market leadership characteristic in particular. They benefit from high incremental margins, low capital expenditures, and high free cash flow. In the 2019 financial year Visa processed over 138 billion transactions to the value of $11.6 trillion – more than MasterCard, American Express, JCB and Diners Club combined. Their business model, global presence and market dominance enables the business to produce high and stable EBITDA margins approaching 70%.  Since the start of the crisis, VISA has experienced a “massive” increase in digital transactions with millions of consumers moving to e-commerce for the first time.

<h3><strong><u>Innovation</u></strong></h3>

Innovation, together with the ability to adapt quickly, will always be a key attribute for successful companies. A good example of a company demonstrating this characteristic is <strong><em>Abbott Laboratories</em></strong>, who were able to design a COVID-19 test for their portable ID NOW testing instrument. With this fast, molecular point-of-care test, results can be delivered in as little as 5 minutes. Just as importantly, it is portable and can be used outside of traditional hospitals in locations such as doctors’ rooms and clinics.

<h3><strong><u>Relevance</u></strong></h3>

It is clear that COVID-19 has accelerated digital transformation, whether it be remote teamwork and learning, or critical cloud infrastructure and security. This plays to another of our holdings strengths – <strong><em>Microsoft</em></strong>, along with Amazon Web Services, is leading the cloud revolution. This helped to increase revenue by 15% and operating income by 25% in the first calendar quarter of 2020, compared to the same period last year – and return $9.9bn to shareholders in the form of share repurchases in the first 3 months of the year.

<h3><strong><u>Robust margins</u></strong></h3>

The ability to maintain robust profit margins, even in difficult times, is a key characteristic of <strong><em>Texas Instrument</em>s</strong>, another quality company we invest in. Although the semi-conductor industry came under pressure early this year during the Chinese lockdown, they were still able to produce a free cash flow margin of 40% in Q1 2020. This margin, which has stayed relatively constant over time, is superior to their major competitors, enabling them to generate more free cash flow and return much of it to investors.

In an environment characterised by low interest rates, companies that can grow their earnings, and reliably return money to shareholders in the form of dividends, are an incredibly attractive proposition. At Marriott, we believe that the above characteristics will not only support our companies during these difficult times but allow them to prosper in a post COVID-19 world.

<h3>Investors can access these companies with Marriott in two ways:</h3>

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<li>Using their individual offshore allowance of R11 million per annum to invest directly into:</li>

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<p style="padding-left: 40px;">- Marriott’s direct offshore share portfolio (International Investment Portfolio), or</p>

<p style="padding-left: 40px;">- Marriott’s international unit trusts</p>

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<li>Using Marriott’s asset swap capacity to invest in our local feeder funds which invest directly into our international unit trust funds</li>

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