Our core investment philosophy that the team has followed since 1988 has not changed.
- Our focus is simply on owning the best companies we can find, where we believe a business is governed effectively and in the interests of all stakeholders and where valuations are acceptable.
- We obsess about the people who own and manage the companies we invest in. Backing the wrong people is a far quicker and certainly more permanent way of losing money than paying the wrong price (although we don’t like paying too much either).
- Emerging market indices have never been our starting point for portfolio construction. By their very nature, they are collections of big companies and popular companies, not necessarily of what we believe are high quality companies.
- ESG is not a screen added to an investment process, it is a core part of our philosophy. We spend a huge amount of time looking at a company’s treatment of employees, the environment, and suppliers. We do this not only because strikes, environmental shut-downs and bankrupt supply-chains hurt profits, but also because a company mistreating one stakeholder is likely another day to mistreat others – and eventually us as minority shareholders.
- Risk to us is losing our clients’ money not underperforming a benchmark.
- Globalisation means there are more and more companies listed outside of emerging markets that make the majority of their money in emerging markets. We have always been happy owning companies listed outside of GEM if we think they are good investments for our clients.
- The companies that we invest in do not divide their activities according to market indices categories and nor should we as long-term investors. We know we cannot predict economic futures but we can try not to be on the wrong side of stock market history.
Investors for the long term
One of the many things we have learned over the years is it isn’t the biggest who survive and prosper, it is those who can evolve. We spend our lives thinking about what can go wrong rather than revelling in the glow of what might go right.
We aim to hold on to companies for at least five years. But generally we’ll stay invested for as long as we can – we’ve held shares in some companies for over 20 years. Once you start thinking about holding companies for five-plus years rather than five weeks, focus shifts from momentum and industry noise towards long-term fundamentals such as the management, culture and history as well as the economics of the business.
While there will be an ongoing drive to develop how we try to do things in the future, we will retain the institutional structure and ability to pursue our core investment beliefs irrespective of market fashions.
Our bottom-up approach
As bottom-up stockpickers, we do not aim to forecast macroeconomic variables with any accuracy or use this as a basis for stock selection. We try to find the right companies first and consider potential head and tailwinds second, some of which may be macroeconomic in nature.
Here are some of the main aspects of what we look for:
Our engagement philosophy
There is no such thing as a perfect company. Every corporate interaction is an engagement. We engage with companies for two primary reasons:
- The purchase of a share in a business comes with both rights and responsibilities.
- Positive engagement on sustainability risks becomes a powerful tool in driving shareholder value and protecting and enhancing the long-term value of portfolios.
The right to engage has to be earned. All company engagement is carried out by the investment team and all voting decisions are managed in the investment team.
We believe our engagement process provides an additional layer of governance.
What to expect - in terms of performance
Given our aim of protecting capital, and our emphasis on fundamental company research, we tend to outperform in market conditions where due recognition is given to companies with quality management teams, good long-term growth prospects and sound balance sheets. The downside in falling markets should also be limited by our risk-aware approach in matters such as valuation criteria. There are times when solid fundamental analysis may not equate to performance, such as during strong liquidity or momentum led markets.