Investment Philosophy

We believe a forward-looking and price disciplined approach to investing that focuses on company fundamentals as the driver of value creation will generate superior returns for clients over the long-term. We call our approach “compound value” to reflect the importance of combining these key elements into our assessment of all investment opportunities

Deep fundamental business analysis is the core of our investment process. We never invest in a company until we have built our own proprietary financial model and we take the time to really understand how the companies we research operate. We believe the price we pay is critical to the long-term return and downside risk of the investment decisions we make. However, our approach is forward-looking and we prefer to invest in growing companies. The common valuation metric that we use across all recommendations is to compare the current price of a stock with our proprietary forecast of its fiscal year 6 earnings. This allows us to compare every company we research regardless of country or industry on a like for like basis. However, we also recognize that a “one size fits all” approach to valuation has its downsides and we tailor to the specific “type of value” that an individual company represents:

• Classic Value – companies where the past is a guide to the future
• Mispriced Growth – companies where the future will be better than the past
• Quality stocks – where a longer-term view is appropriate because the company is sufficiently robust or predictable
• Discounted Cash Flow – companies where cash generation will drive the share price
• And Discounted Assets – where unlocking of asset value drives the investment thesis as the assets of the business may be underutilized or ignored­

A discounted asset stock may not look particularly attractive from an earnings perspective, for example, but still be undervalued. Likewise, if a company is particularly resilient, or is growing strongly, it can be appropriate to pay a little more than would be justified for a lower quality or slower growing company. We believe the types of value framework we adopt allows us to have a broad approach to valuation whilst also benefitting from a strict price discipline.

Stock recommendations from analysts are vetted by the relevant Director of Research at team meetings within a culture that celebrates creative idea generation.

Our investment process fuses “bottom up” stock selection with the development of a deep understanding for what exposures an individual stock brings to portfolios. We categorize stocks by type of value but also by a range of other “risk clusters” that form a bridge to our portfolio management process. Where the ideas embedded in a stock recommendation are relevant to a broader theme that could become a significant exposure in portfolios we may draw together resources from across our team to work in a coordinated manner and build conviction.

We aim to build portfolios that are well diversified by country, industry, type of value and risk clusters. However, we are willing to back our conviction and our portfolios tend to look very different to benchmark indices.

The value of the shares and any income derived from them can fall as well as rise, and investors may not get back the full value of their investment.

The portfolio is likely to be more concentrated than that of other similar companies and share price and NAV are therefore likely to be more volatile than other more diversified portfolios.