The Strategy’s long investment philosophy is designed to identify ‘European Leaders’ – companies that the investment team believes demonstrate the potential for long term growth, generate healthy operating margins and returns on capital, have strong leadership, and operate sustainably. The philosophy is based on a bottom-up research process designed to understand the drivers, the direction, and the durability of six 'forces' that these ‘European Leaders’ typically exhibit.
The long philosophy is expressed in three strategies:
Compounding Leaders – Companies where the principal driver of returns are expected to be the sustainable long-term growth of earnings and free cash flow.
Emerging Leadership - Businesses which are on a “good to great journey”, often with an identified catalyst.
Value Leadership - Mispriced and/or misunderstood assets where the principal driver of returns, in addition to earnings growth, includes the potential for multiple expansion.
Conversely, the short side consists of single stocks where the investment team believe the objective view of economic reality materially differs from the current market perception. The investment team utilise a forensic audit process to identify single stock shorts which, in their view, ‘fail’ by demonstrating poor earnings quality, deteriorating fundamentals, and weaknesses in corporate governance. This process is supported by a dedicated analyst resource with expertise as financial auditor and forensic accountant at KPMG.
The investment process is repeatable, data intensive, and designed to encourage continuous process improvement. Data monitoring, a core tenant of the process, is utilised to measure the ‘pulse’ of a business and identify critical inflection points. The investment team utilises a propietary data platform designed in collaboration with Man Group data science and Man Group quantitative researchers to monitor portfolio investments. Idea generation is unconstrained and multi-dimensional, it relies on both stock specific screening, a deep understanding of business drivers and industries, as well as commercial awareness. Prospective investments undergo deep, bottom up due diligence by the investment team.
The portfolio is constructed by taking into account conviction, risk and complementarity to the rest of the portfolio. Undesired risk factors are constrained and often neutralised by long and short exposures.