Our philosophy is built on four beliefs:
Every company has a price – Any company may be an investment opportunity if it is mispriced. In our experience, investment opportunities are not confined to a particular industry, company type or investment style (e.g. Value or growth).
Share prices follow earnings – No matter how undervalued a company may seem, if earnings expectations are downgraded, the share price will generally fall. Companies generally reach fair value when they meet or beat market earnings expectations.
Companies become mispriced when recent information is incorrectly extrapolated – The market is always trying to value a company by pricing the future. Often, the market will take current information and extrapolate it. But in our experience, the status quo rarely prevails. For example, an industry cycle may turn or a company’s fortunes may change. Significant investment opportunities arise when the markets view on the future is inaccurate. To uncover and capitalise on the opportunities, you must be willing to look beyond the present.
Fundamental analysis allows the flexibility to capture unique opportunities – Every company is different. So is every investment opportunity. Fundamental analysis is the best way to capture all the different opportunities available in the market through time. A simple rules-based approach is not effective.
Idea Generation – Idea generation reduces our universe down to attractive opportunities for further research. We have a diverse range of sources for investment ideas: valuation screening, analyst ideas, and corporate activity and events.
Focused Research – The focused research stage is the most important and intensive part of the investment process. During the focused research stage we aim to develop our investment thesis on ‘What Matters’ for the individual company we are researching, undertake rigorous fundamental research to build and test our investment thesis, finalise our earnings forecast and company valuation.
We value companies based on a 3-year earnings horizon. We look to buy companies that are cheap based on our 3-year forecast.
We aim to avoid investing in companies that we believe are at risk of a material earnings downgrade. In our long short strategy, these companies become candidates for our short portfolio.
Team Decision Making – Decisions are made by a team of experienced portfolio managers who have worked together for over ten years. Investment decisions are made formally at an investment committee based on rigorous fundamental research.
The clear benefits of a team based approach is a reduction in key person risk and increased diversity of thought in the portfolio.
Portfolio Construction and Risk Management – Following the decision making process, investment ideas with our highest conviction will enter the portfolio. When constructing our portfolios key considerations include:
- – Position Sizing: Which will reflect our conviction in the position, risk and liquidity
– Risk analysis: How a position will affect the portfolio and thematic risks
– Portfolio Manager review: Top down portfolio and risk management review
– Buy/Sell discipline: Allocation of capital is determined by best available opportunities
We aim to build high conviction equities portfolios of our best investment ideas.
It is our belief that ESG can and should be factored into a company’s valuation. ESG analysis is integrated into our research process rather than being part of a separate stream.
Each analyst is responsible for ESG for the company’s they research. We believe this is critical to ensure ESG is considered as part of the valuation process of a business.
We directly engage with companies to advocate for change.