The MS Global Franchise Fund (Trades, Portfolio), part of Morgan Stanley, reported its fourth-quarter portfolio last week, disclosing it established two new positions and exited another.
The fund, which is managed by a nine-person team, seeks long-term capital appreciation by investing in high-quality companies around the world that have resilient business franchises and growth potential.
The Global Franchise Fund established holdings in Fidelity National Information Services Inc. (FIS, Financial) and FactSet Research Systems Inc. (FDS, Financial) during the quarter. It closed its position in Time Warner Inc. (TWX, Financial).
Fidelity National Information Services
The fund invested in 213,080 shares of Fidelity National for an average price of $93.99 per share, giving it 1.96% portfolio space.
The Jacksonville, Florida-based financial tech company has a market cap of $33.41 billion; its shares were trading around $101.08 on Monday with a price-earnings ratio of 25.67, a price-book ratio of 3.11 and a price-sales ratio of 3.71.
The Peter Lynch chart below suggests the stock is overpriced since it is trading higher than its fair value.
GuruFocus rated Fidelity National’s financial strength 5 out of 10 as its interest coverage ratio of 4.41 does not meet Benjamin Graham’s threshold of 5, meaning it may have some difficulty covering interest expenses on outstanding debt. In addition, its Altman Z-Score of 2.25 indicates it is under some financial stress. Despite experiencing operating margin decline, its profitability and growth was rated 7 of 10 because it still outperforms 82% of competitors. In addition, it has a moderate Piotroski F-Score of 5 and a three-star business predictability rating (out of five).
With 0.11% of outstanding shares, Pioneer Investments (Trades, Portfolio) has the largest position in Fidelity among the gurus. Ken Fisher (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) are also shareholders.
FactSet Research Systems
The fund established a 69,523-share holding in FactSet for an average price of $191.75 per share, expanding the portfolio 1.31%.
The Norwalk, Connecticut-based financial data and software company has a market cap of $8.31 billion; its shares were trading around $212.98 on Monday with a price-earnings ratio of 32.16, a price-book ratio of 13.46 and a price-sales ratio of 6.67.
According to the Peter Lynch chart below, the stock is overpriced as it is trading above its fair value.
FactSet’s financial strength was rated 7 out of 10 by GuruFocus as it has good interest coverage and a strong Altman Z-Score of 9.54. Its profitability and growth was rated 8 of 10 as it has a strong Piotroski F-Score of 6 and a five-star business predictability rating. Although its operating margin has been declining for the past several years, it still outperforms 62% of competitors.
Of the gurus invested in FactSet, Ron Baron (Trades, Portfolio) has the largest holding with 7.69% of outstanding shares. Tom Gayner (Trades, Portfolio), Columbia Wanger (Trades, Portfolio), Jim Simons (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) also own the stock.
Time Warner
MS Global closed its position in Time Warner, selling 49,279 shares for an average price of $94.52 per share. The trade had an impact of -0.53% on the portfolio. GuruFocus estimates the fund has gained 28% on the investment since the fourth quarter of 2017.
The New York-based media and entertainment giant has a market cap of $75.52 billion; its shares were trading around $96.99 on Monday with a price-earnings ratio of 14.60, a price-book ratio of 2.66 and a price-sales ratio of 2.45.
Based on the Peter Lynch chart below, the stock appears to be trading close to its fair value.
Although the company’s interest coverage meets Graham’s standard of 5, GuruFocus rated Time Warner’s financial strength 4 out of 10 as its Altman Z-Score of 0.52 suggests it is under financial stress. It profitability and growth, though, was rated 8 of 10 as its operating margin has been expanding. In addition, it has a moderate Piotroski F-Score of 5 and a one-star business predictability rating.
Dodge & Cox is the company’s largest guru shareholder with 2.68% of outstanding shares. Seth Klarman (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Pioneer Investments, Andreas Halvorsen (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), David Abrams (Trades, Portfolio), John Paulson (Trades, Portfolio) and many others also own the stock.
Other trades
The fund also added to many positions during the quarter, including British American Tobacco PLC (LSE:BATS, Financial), Danaher Corp. (DHR, Financial), RELX PLC (LSE:REL, Financial), Accenture PLC (ACN, Financial) and Microsoft Corp. (MSFT, Financial), among others.
MS Global’s current portfolio of 30 holdings is largely composed of stocks in the consumer defensive sector. By region, U.S. stocks make up the majority of the portfolio at 55.03%.
According to its fact sheet, the fund outperformed its benchmark, the MSCI World Net Index, in 2017 with a return of 24.63%. The index posted a 22.40% return.
Disclosure: No positions.
