We are patient, long term investors with our key focus being achieving our fund objectives. We are not index trackers and while we are happy for clients to judge us against an appropriate benchmark, we are benchmark agnostic when constructing portfolios.
We have conviction to back our strong views and generally have a longer holding period. We quite often find ourselves investing in contrarian or neglected ideas and we tend to have a high hit rate on those positions that make it into our portfolio. Strong portfolio construction is key to our success. We would rather have errors of omission than errors of commission.
We have a wider investment tool box at our disposal which includes yield enhancement instruments. We use credit, preference shares, hybrids and property stocks to enhance the yield on our cash holdings, as well as to assist in producing consistent, absolute returns through a full market cycle.
We have an excellent understanding of risk, honed through our hedge fund management process. We carefully assess risks individually and in a portfolio context. Good underlying value helps to mitigate downside risk, and we actively seek out ideas that carry positive optionality. We focus on the liquidity of all our underlying positions to ensure that there is not a mismatch between the liquidity of our portfolio and the liquidity we offer investors.
Equity Investment Process
Equity valuation is the underpin to all our investment decisions. We perform detailed research and modelling on every company that we invest into and ensure that this is a re-iterative process in which we are constantly re-evaluating assumptions made. We forecast an expected return based on normalised, through-the-cycle earnings, cashflows and dividends. We are cognizant of the macro environment and how this may influence our assumptions and inputs into our research approach. While it doesn’t specifically dictate our positioning an awareness of global capital flows and macroeconomic trends is important in managing funds in the South African context.
The equity research process is characterised by:
Fundamental company and industry research including company visits and competitor analysis;
Valuation of company shares using normalised earnings models, cashflow cycles, asset revaluations;
Identification of behavioural pricing anomalies and sentiment swings reflected in the market;
A framework of major macroeconomic themes and sectoral shifts is debated.
Fixed Income Investment Process
We have a wide fixed income investment universe which covers a broad range of asset classes, unconstrained by a defined bond benchmark. We use 7 building blocks which cover the traditional fixed interest markets as well as incorporating instruments that exhibit both fixed interest and equity characteristics.
This allows us to look for opportunities across the yield curve and in sectors that make sense on a standalone investment basis relative to cash throughout the interest rate and inflation cycle. The duration of our funds is actively shifted based on the economic cycle and our return expectations. Our process offers the benefits of traditional fixed interest investment (related to capital preservation and liquidity) but with the additional benefits of greater diversification as well as the ability to mitigate the downside risk to a greater degree than with traditional approaches.