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Investment Approach / Our Process / Equity Investment Process

Equity Investment Process

We employ a quality and value approach using a fundamental, bottom-up investment strategy for our equity portfolios. The portfolios are high conviction, holding far fewer securities than their associated benchmarks.

When constructing equity portfolios, we strive to invest in high-quality securities with lower valuations than the overall market. These are the characteristics we look for in these companies. 

Characteristics Key Measures
QUALITY
  • Long-term track record
  • 10 years or more of operating and earnings history
  • Consistent management and strategy
  • Company’s actions match management’s words
  • Conservative balance sheet
  • Low debt/equity ratio
  • High-quality or improving operating earnings
  • “Per share” profitability
  • Higher return on equity (ROE)
  • Dividend growth
  • Self-sustaining businesses (positive cash flow)
  • Cash flow exceeding net income
  • Stable share count
VALUE
  • Less expensive
  • Lower P/E, P/B, and P/CF multiples (relative & absolute)
  • Lower price-to-book value
  • Shorter payback period
  • Discount to net asset value (NAV)

Building High-Quality Equity Portfolios

STEP ONE

Assess Business Quality

Our research analysts start by evaluating business quality through a thorough analysis of historical results, current operations, and financial performance. They compare a company’s quality with its peers and actively engage with management, leveraging our deep familiarity as long-term, high-conviction managers.

STEP TWO

Evaluate Profitability and Valuation

Analysts assess a company’s historical profitability and determine its absolute and relative fair value by examining:

  • Earnings sensitivity
  • Multiple expansion potential
  • Net asset value

We conduct three types of company analysis:

Financial Analysis Management Strategy Valuation
  • Financial track record (10 years+)
  • Conservative balance sheet
  • Predictable cash flow
  • High-quality earnings
  • Sustainable business model
  • Consistent management and strategy
  • Efficient capital allocation
  • Quality of governance and shareholder alignment
  • Competitive positioning within industry
  • Attractive absolute/relative value
  • Lower price-to-earnings
  • Lower price-to-book
  • Discounted net asset value and sum of the parts
  • Attractive dividend yield

STEP THREE

Investment Grade Rating (IGR)

The final step involves assigning an Investment Grade Rating (IGR) from 1 to 5, which acts as a risk control mechanism. This rating determines the maximum allowable weighting of a company within the portfolio, with higher quality companies receiving higher allowable weightings.

Commitment to Responsible Investing

We fully integrate responsible investment (ESG) factors into our equity investment process. This integration ensures that our investment decisions align with broader environmental, social, and governance considerations.

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