Our global equity team's investment philosophy is a fundamental, conservative bottom-up approach to stock picking, focusing on quality (strong balance sheets, earnings visibility and competitive businesses) and value.
We are active global investors, with a long-term, low turnover investment approach, focusing on quality companies with attractive valuations.
- PIIML's global equity portfolio represents our best investment ideas.
- Idea generation is creative and driven by the experience and knowledge of the equity managers.
- Stock ideas are generated by individual equity managers, but researched in-depth by the team.
Research
- Several hundred stocks are followed for investment opportunities, although intensive research is focused on a smaller number.
- Our team reviews company financial statements and meets senior management regularly to gain a sense of earnings patterns, franchise opportunities and management strategy.
- The Perpetual Group manages more than €38.2 billion in assets. As a subsidiary, we have first-tier access to the leading investment bank analysts for all major industries.
- We have excellent systems, which enable us to filter information from multiple sources worldwide and establish consistency in the financial data analysed.
- Before evaluating the investment prospects of a stock, the equity team assesses the underlying company's quality, on the basis of several measures such as cashflow generation, margin sustainability, earnings growth, balance sheet strength and liquidity.
- Candidate stocks are all initially assessed against a template of 'PIIML tests' which establish a hurdle rate for factors such as interest coverage, leverage and profitability.
- The portfolio is notable for its strong bias toward clean balance sheets, high return on equity and established earnings growth. The team is also favourably disposed toward company managements with a good track record and proven shareholder-orientation.
- If a stock passes the quality tests, it is not automatically included in the portfolio. It must also be attractively valued using fundamental valuation measures such as P/E, price/cashflow and dividend yield.
- Stocks are evaluated relative to their peer group, their price history and against existing portfolio holdings.
- Our equity managers apply these measures in the light of the quality of the company under consideration, its likely growth rate of earnings, and prevailing interest rates.
- The aim of our portfolio construction process is to strike the right balance between concentration and diversification:
- The global equity portfolio will typically hold 60-90 stocks.
- The minimum position size is 0.75%; the maximum is 5%.
- Normally, a free float of at least $2 billion is required.
- We generally own no more than 5% of a company's outstanding shares.
- Our benchmark-independent philosophy means that the team will not target tracking error.
- We believe that to base risk control simply on the weight of a stock in a benchmark is to ignore the central issue of whether it is under- or over-valued. Instead, our experience has been 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.
Country weightings
The country weights of the portfolio result from the 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 result from the stock selection process. Thus, the portfolio might often exhibit substantial variations from benchmark. However, a limit of 25% is placed on any single industry to ensure adequate diversification.
Currency decision
We will hedge currencies, but only when convinced there is a significant risk that a stock's return might be impaired by an adverse currency movement.
Sell decisions
Stocks are sold from the portfolio when we judge that 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 fundamentals, or if we were not convinced by the management's strategy.