Our process is calibrated around the long-term. We look through a cycle and conduct rigorous research to create a concentrated, high conviction portfolio of under-valued stocks.
Our investment process begins with stock selection which is done through screening, research and stock valuation as well as rigorous team debate. We then construct a portfolio which is monitored on an ongoing basis. This is all underpinned by risk management to avoid permanent loss of client capital.
Our analysts screen for stocks using both quantitative and qualitative factors. Quantitatively, we have a bias in our screening towards stocks that meet our proprietary definition of a ‘quality’ business, while qualitatively we extend our screening to find businesses with improving fundamentals or great businesses that may have stumbled. We find these ideas from a variety of sources, including reading, conferences and investor trips conducted throughout the year.
- RESEARCH AND STOCK SELECTION
Research is conducted by thoroughly analysing and understanding a company from the ground up using our proprietary research process. We seek to understand the business as a business owner would, and value our stocks using a long term time horizon. As bottom-up stock pickers, we are more concerned with getting the stocks we own right rather than missing stocks we don’t own.
- PORTFOLIO CONSTRUCTION
We construct our portfolio on a “clean slate” basis, meaning we choose to invest in businesses that reflect our best investment view, with no reference to a benchmark of stocks. Our rigorous research process creates high conviction stock calls, leading to a portfolio that will be more concentrated than the average, and will also have a lower turnover than average, because of our long-term investment horizon.
We meet regularly to discuss portfolio construction, new ideas, risks and macroeconomic developments. We constantly monitor individual stocks within our portfolio by keeping abreast of company capital allocation as well as changes in a company’s competitive advantage.
- RISK MANAGEMENT
We define risk as the permanent loss of client capital, not deviation from a benchmark. Our highest priority is to always protect client capital through an investment cycle. We entrench this by having properly aligned the investment manager with our clients via ownership of our business.
We mitigate the risk of permanent loss of capital by conducting a disciplined approach to valuing companies:
Our screening process is designed to identify high quality global companies within the broader universe of companies. We filter for those companies that have demonstrated the ability to earn above average returns on equity over time.
- Research & Stock Valuation
We conduct robust research in order to correctly assess the business model and risks of a company before investing. We value companies using a multiple that takes both sovereign risk and business quality risk into account. We use long-term assumptions and build conviction through rigorous research and debate.
- Portfolio Construction
We construct diversified portfolios of undervalued assets by adhering to our margin of safety principle when buying shares and reducing position sizes as a share approaches our fair value.
Backed by world-class operations, we constantly monitor individual stock risks within our portfolio as well as overall portfolio risks, including sectoral concentration, geographic, currency, commodity, interest rate and ESG risks.