Investment philosophy

Our investment philosophy is a fundamental, bottom-up approach to stock picking, based on sustainable value creation by purchasing securities at a discount to their intrinsic value.

We believe that investments in solid and understandable businesses that generate cash without being burdened by too much debt ultimately deliver above market returns to investors, providing they are purchased at attractive prices.

Our aim is to add value over the long term through a disciplined investment process focussed on company fundamentals.

For a company to be considered in our portfolio it must demonstrate a history of stable earnings, a strong balance sheet, sound management and a sustainable business. Once we identify these companies, valuation becomes the key. 

Investment approach

We offer two products to institutional investors, a broad global equities product and a concentrated strategy both of which use a similar approach:

• We have a mid to large-cap bias, focusing on companies with a market cap of over US$2 billion in free-float.
• We use a bottom-up stock selection – no top-down country or sector allocation.
• Our portfolios are benchmark independent – we don't invest relative to company benchmark weightings.
• We invest in quality companies with sound management, competitive business models, strong and transparent balance sheets, and sustainable earnings.
• We have a bias to companies with high returns on equity.
• Stocks in our portfolios typically have a lower P/E ratio and a higher dividend yield than the market.

Our Global Equity portfolio typically holds between 60 and 90 stocks and is expected to have lower volatility than the market over three to five years.

Our Concentrated Global Equity portfolio typically holds around 25 stocks chosen from the pool of stocks in the Global Equity portfolio.

The Concentrated Global Equity Portfolio is a portfolio in its own right, and individual stock weights reflect the need for broad sector and geographic diversity within such a concentrated portfolio. It is expected to have lower volatility than the market over two to four years.

Stock selection

We have an initial universe of around 700 to 800 stocks that meet our criteria of being above USD2bn and in well regulated and liquid markets. We also will not consider companies where the business model has not been proven so we typically we like to see at least 5 years of history.

Before evaluating the investment appeal of a company, we assess its quality on several measures such as:

• balance sheet strength
• consistency and reliability of earnings
• sustainability of profit margins
• strong capital management.

This limits our potential universe to around 400 to 500 stocks. These are subject to further active research, debate and discussion, much of which focuses on the price to pay for a company. We only invest if we believe the price is attractive based on our assessment of its fundamental value. 

Portfolio construction

We apply an unconstrained approach to portfolio construction where each stock is bought on its own merit and independent of the benchmark. This means that tracking error is not targeted and country and sector weights are an outcome of the process (although we have sensible limits of maximum 25% exposure to any individual industry). The aim of our portfolio construction process for our Global Equity Portfolio is to strike the right balance between concentration and diversification.

Team decision making

We adopt a team-based approach to decision-making which provides an effective way of managing risk and constant scrutiny of the portfolio.

• It removes any weak arguments and personal biases.
• It means we can allocate research to where the investment controversies are in the world.
• It ensures that there is a consistently applied buy and sell discipline.

Managing risk

Our approach is to manage risk across a number of dimensions. Our experience has shown that if we pay close attention to the quality of a company and the entry price to a stock, then our portfolio tends to suffer less absolute downside risk in the long run than the benchmark. Stocks are sold from the portfolio when we believe they are fully priced or a more attractive alternative arises. Additionally, a stock would be considered for sale if there was an adverse change in the quality of a company's business.

Our conservative approach to risk control is based on our selection of corporate characteristics such as earnings sustainability and low balance sheet risk, together with our valuation discipline, which aims to minimise absolute downside risk.

We may hedge currency exposure, but only when convinced there is a significant risk that the portfolio returns might be impaired by an adverse currency movement.

More information

Contact our Institutional sales and servicing team.