We seek to generate excess returns by integrating a rigorous stock selection process with strict portfolio management risk controls. We combine direct company contact with proprietary research, a consistent valuation framework, a comprehensive 25-point quality assessment and consideration of macroeconomic risks. This approach provides a repeatable structure for building high conviction portfolios, with clear triggers for buy-signals and sell-discipline.
Rather than screening companies on ESG criteria, we seek to understand the risks and capture them in our proprietary quality ranking. ESG analysis is integrated into our investment process through our quality assessment and ranking model. A score is assigned to each criterion; a lower quality score makes it harder for a stock to be included within the overall portfolio. ESG criteria account for 20% of the overall quality score.
Our investment process can be broken down in seven steps:
Securities that have poor infrastructure characteristics, complex corporate structures or a low market capitalization are screened out in the first step of the process.
- Fundamental research
Valuable insights are sought into each company’s management team, asset quality, financial position, strategic direction, as well as the regulatory environment and overall competitive landscape. This includes a consideration of ESG issues for the firm.
- Valuation ranking
Securities are ranked on consistent valuation measures. We use local currency cash flows and bond rates, with globally consistent equity risk premiums and asset betas.
- Quality ranking
Each company is evaluated on 25 criteria that we believe influence performance. We look at infrastructure characteristics, management, financial position, regulation, sustainability and equity flows.
- Security selection
Valuation and quality ranking results are combined, to determine a security’s overall ranking. This provides us with an indication of the portfolio derived from a purely bottom-up basis.
- Macro risk management
Geopolitical and macroeconomic scenarios are debated and their potential impact on the companies is considered. This enables us to better manage the potential risks in an overall portfolio.
- Portfolio construction
The portfolio is constructed based primarily on the security rankings assigned in step five of the process. The final weighting of each security within the portfolio also reflects expected returns, the degree of the team’s conviction and correlation with other securities in the portfolio. We seek diversification across countries and sectors to manage regulatory and event risk.