We focus on long-term economic drivers, such as increasing affluence, an aging society or new technological demands, and the industries best positioned to benefit from them. These portions of the economy are growing in size relative to the overall economy. Through fundamental company analysis, we identify the economic logic of a business and its long-term embedded value; we focus on a company’s potential to maintain its competitive advantages and its optionality. Understanding the sources and durability of a company’s advantage that underpin its earnings and cash flows is paramount and informs our judgment.
High quality companies are typically industry leaders and have a combination of global scalability, strong management, valuable intellectual property, sustainable sales and earnings growth, high ROIC and cash flow, and a strong balance sheet. These companies, however, are seldom on sale. Opportunity arises when the market doubts the persistency of a company’s earnings and excess returns or is unable to envision a different future. Our long-term analysis of 3-5 years differentiates between temporary and structural circumstances and helps us determine the value at which we are prepared to own a stock given the future growth. We use a contrarian approach to purchase high quality companies that are trading at attractive valuations.
The result of our independent thought and patient approach is a differentiated portfolio with a sufficient time horizon for growth to compound.
Independent risk assessment and strategy guidelines
PORTFOLIO LEVEL MONITORING
- Active security, industry and sector weights
- Projected volatility and tracking error
- Exposure to unintended factor bets
- Liquidity risk and stress testing
FIRM LEVEL FUNCTION
- Independent reporting line to CEO
- Regular portfolio reviews with investment teams and Investment Risk Management Committee
- Continuous monitoring of market liquidity and firm-wide exposure to individual issuers