Investment Approach

Our experienced investment team avoids the distraction of trying to manage several different types of investment "products" focussed on different investment markets.

We have a particular focus on limiting our portfolios' exposure to higher risk equities. We want to maximise the likelihood that our fund will hold up better than the overall share market in the event of a market crash or sustained downturn in equity markets. Further, we believe that in the long term, lower risk equities are likely to produce a better reward-for-risk than higher risk equities. You can read more about why we prefer lower risk equities here.

There are lots of things we could look for in companies that would be good indicators of future investment return if no-one else was looking for them. But it is naïve to simply favour obvious characteristics that are commonly associated with investment success. This is because when almost every other investor and fund manager is looking for companies that carry a popular badge of investment success, the price that you need to pay in companies that carry this badge can be extremely high. Paying high prices for investments is risky, as it carries the risk of significant loss if the company you are investing in disappoints in any way.

Instead of chasing after investments with the same trendy characteristic that every other investor is looking for, we focus on looking for insights, perspectives, and investment characteristics that other fund managers and investors are currently ignoring. Over time, investment markets swing around from chasing certain “hot” characteristics to chasing others. By favouring meaningful investment characteristics that are not currently in favour and avoiding paying excessive prices for characteristics that are hot, we expect to benefit from these swings in the market’s focus.

We read and undertake empirical research to understand what investment criteria have historically produced good results. We apply judgement to interpreting the historical evidence, as we understand that what has worked in the past will not always work in the future. This means understanding what investor behaviours or biases seem to have influenced past investment performance, and asking ourselves whether these behaviours persist in the current market environment.

We have respect for investment markets, and therefore like to find small relatively certain gains rather than focussing entirely on bold investment “bets”. We are vigilant about minimising transaction costs and like to find cheaper ways of investing in the same company (here are some examples of how).

We will not invest in a company purely on the basis of our expectations for its short term share price performance if we cannot understand how it can produce an acceptable return to investors over the longer term. We typically try to forecast how a company will perform over a 15 year time horizon, and model what that means in terms of investment returns.

While the top holdings lists of many of our competitors' funds are dominated by the same small group of well-known large US-based tech-related companies, we often find better long-term investment prospects in companies from other countries and other sectors that may not be so well-known. In the short-term our willingness to look beyond these US mega-cap companies may lead to divergences between our portfolio's returns and the returns of the global equity market, but in the long term we expect that it will produce a better combination of return and risk.

We screen listed companies on several criteria, and using these screens to identify companies that deserve further research.

We spend 80 – 85% of our time improving our understanding of companies that we have already invested in, and the remainder focussed on potential new investments.

We exclude some companies from investment consideration based on our ethical concerns about the sort of business they undertake, or the way they go about their business. We won't invest in companies that manufacture nuclear weapons, chemical weapons, biological weapons, automatically-triggered landmines, most tobacco-based products, or automatic or semi-automatic weapons for civilian use. You can read more about our ethical investment approach (including the cautious approach we take to investing in several other industries) here.

We use statistical tools to help understand the potential variability in both the absolute and relative performance of the portfolios we manage and monitor how different investments contribute to this risk.