Investment philosophy

Our investment philosophy is to invest in quality companies at attractive prices. As we select shares based on stock-specific fundamentals, we are commonly referred to as an active ‘bottom-up’ fund manager.

We seek to buy shares at levels where the market price is below what we perceive to be fair value given a company’s fundamentals and market conditions. We tend to invest in stocks exhibiting 'value' characteristics such as low price-to-book values, low price-to-earnings ratios and higher yields. As a result, our investment in various stocks and sectors is likely to differ from the market, and thus the benchmark index. 

Investment approach

Our bottom-up stock selection process involves four steps. 

Step 1: Initial stock identification

This step identifies a potential investment opportunity. Our analysts conduct a quick review to decide whether the opportunity is worth further investigation. 

Step 2: Stock selection process

After a stock has been identified as a possible investment opportunity, it must pass our stock selection criteria. This is the most extensive and important step of the process. If any existing or potential company, fails the criteria it is excluded from the portfolio.

We analyse across four criteria:

 Sound management - We search for companies that are managed by experienced, clearly focused and prudent people.

 Conservative debt levels - Although companies with high debt levels are often favoured during sharemarket booms, our focus on minimising risk restricts such companies from being included in our portfolios. These companies are often the first to be adversely affected during economic slowdowns.

 Quality of business - We assess a company’s ability to produce established products and services, the nature of the industry sector in which the company operates, market share and competitive factors such as barriers to entry.

 Recurring earnings streams (in the case of industrial companies) - We seek to invest in companies which are likely to produce a recurring earnings stream given normal operating conditions.

If a company passes the stock selection criteria, it then forms part of our 'universe' of available stocks from which our portfolios are chosen. On average, we follow approximately 250-275 companies, of which about 200 pass our stock selection criteria and are included in our universe of stocks. 

Step 3: Portfolio construction

Each analyst has their own universe of stocks which have passed the stock selection criteria. These are ranked on a scale of 1 (best) to 5 (worst) on the basis of expected performance and value. These rankings are then used by the portfolio managers to construct our portfolios. 

Step 4: Portfolio maintenance

We monitor our portfolios to ensure that the stocks are continually subjected to the disciplines of our process. This is an integral part of the process and forms part of our analysts’ daily activities.

As a result of our rigorous stock selection process, Perpetual Investments is one of Australia’s leading funds management companies, highly recognised for its management of equities.

For more information

Contact our Institutional sales and servicing team.