February 6, 2020 – Scott Klimo, chief investment officer and portfolio manager at Saturna Capital, was a featured guest on Chuck Jaffe’s Money Life podcast. Jaffe and Klimo discussed Saturna Capital’s investment process and Klimo’s China outlook before launching into the “Market Call,” a regular segment in which podcast guests weigh in to “hold it or fold it” regarding stock picks submitted by Jaffe’s audience.
Jaffe, a syndicated financial columnist and host of Money Life, asked Klimo about Saturna’s investment process, specifically about Saturna’s “layered” values-based approach. Saturna's process incorporates Islamic principles and/or ESG considerations, depending on the strategies applicable to the mutual funds they manage.
“First, we are long-term investors,” Klimo explains. “Our average holding period is in excess of 10 years. So, we really do take a deep-dive, fundamental look at the companies that we’re considering investing in.” He says other key considerations are a company’s competitive environment, including technological and geopolitical developments, and the effects of climate change.
“We look for well managed companies with an identifiable and sustainable competitive advantage. We are also very focused – and this is across the board – on ESG, environmental, social, and governance issues, and we strongly believe companies that perform well on ESG are less risky,” he said.
Regarding China, Klimo admits he's bullish on certain areas of the economy but warns that governance weighs heavily on his investment outlook. “There’s a lot of warping and skewing of the Chinese economy and economic activity because of the level of debt that’s employed and because of the government participation within the economy. I was recently at a presentation from an economist who described China as ‘ground zero for zombie companies’ because whether they’re state-owned enterprise or whether they have access to cheap capital, they’re just kept afloat.”