Investment philosophy & process
Our investment philosophy is a fundamental, bottom-up approach to stock picking, focusing on quality and 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.
Research
We consider several hundred stocks for investment and the best opportunities that exhibit strong quality characteristics are then subject to further research, debate and discussion. We only invest if we believe the price is attractive based on our assessment of its fundamental value.
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, and strong capital management. Companies exhibiting strong quality characteristics dominate the portfolio.
Valuation analysis
For a stock to be included in the portfolio it must be attractively priced based on fundamental measures such as P/E, price/cashflow and dividend yield. Stocks are evaluated relative to their global and sector peer group, their price history and existing portfolio holdings.
Portfolio construction
We apply an unconstrained approach to portfolio construction where each stock is bought on its own merit and independent of the benchmark. We also adopt a team-based approach to decision-making.
The aim of our portfolio construction process for our Global Equity Portfolio is to strike the right balance between concentration and diversification.
Country weightings
We don't invest on the basis of country weights. The country weights of the portfolio result from the bottom-up global stock selection process. There are no constraints on the maximum and minimum regional positions that may be taken. Hence country weights in the portfolio may vary substantially from those of the index.
Sector/industry weightings
Sector/industry weights are an outcome of the stock selection process and this means the portfolio may vary substantially from benchmark. However, to ensure adequate diversification a limit of 25% of the portfolio to a single industry applies.
Currency decision
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.
Sell decisions
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.
Risk process
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.
Our benchmark-independent style means that we do not target ex ante tracking error, ensuring our portfolio remains active.
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.
