We believe that excess returns can be achieved by investing in 40 to 80 undervalued companies with the following characteristics:
- Quality business models - We firmly believe that the only way to achieve sustainable excess returns is to invest in companies that have a sustainable competitive advantage and proven management teams with a history of strong capital allocation, ensuring future operating cash flows are deployed in a manner that will ensure excess returns going forward.
- High margin of safety in their fundamental valuations - Our analysts use various valuation methodologies including discounted cash flow (DCF), historic company multiples (price to earnings, price to book etc.) and sum of the parts calculations to calculate a company’s fundamental value. These valuations are based on conservative, through-the-cycle, normalised earnings and cash flow forecasts.
- Governance standards that meet our minimum requirements - We use a proprietary framework to analyse the governance structures, policies and practices of all companies we consider investing in for our clients. We believe it is not sufficient to discount governance risks into fundamental stock valuations – stocks where the governance tail risk is significant should rather be avoided completely.