Through a distinct philosophy and thorough process, we aim to find those opportunities around the globe that we believe are most likely to result in attractive returns for investors.
Potential, valuation and timing
Our PVT investment philosophy recognises the three key factors that enable us to discover the most promising investment opportunities regardless of market conditions.
We evaluate all stocks according to a combination of these clearly defined and continuously monitored investment factors. This enables our team to maximise returns and minimise risk.
The potential of a company represents its ability to create economic value for shareholders. Economic value is enhanced by a growth in profits, cash flow or asset backing. We look for companies with above average value creation potential.
Valuation represents the gap between the stock market’s valuation of the company (i.e. its current share price) and its underlying economic worth. This gap is what we call the pricing anomaly.
Timing addresses the issue of when is the right time to buy and sell. It aims to minimise the risk of being too early into an investment, and to optimise the period of time held and returns generated once an investment has been made.
Categories of potential
Over the years we have found that companies that can deliver above average potential divide into four categories; these relate to where a company is in its ‘life cycle’:
Growth – the delivery of strong revenue and profits growth
Quality – a business franchise that delivers a superior return on investment
Recovery – the process whereby a company produces a recovery in profits to ‘normal’ levels following decline
Asset-backed – the delivery of asset backed growth to a long-term investor.
"We are, first and foremost, bottom up stock pickers, but the PVT philosophy provides an unemotional analysis of an investment, detached from swings in markets and investor sentiment that can come from macroeconomic events and the news"
Hugh Sergeant, Head of Value and Recovery strategies
We are practical investors who live and breathe the evaluation of company prospects. We also believe there are repeatable investment cycles that can be systematically exploited, so we combine quantitative research with fundamental stock-specific analysis.
Our proprietary quantitative analysis tool allows us to quickly and systematically review vast amounts of complex data efficiently, scrutinising a universe of UK and global equities in order that we can track down and target the best opportunities to investigate further.
We then use the knowledge, expertise and, importantly, experience of our team to carry out fundamental research to validate every PVT idea to find those that will work best in our portfolios.
There are four stages to PVT idea verification:
Our quant tool's findings are discussed at our weekly team meetings. We’re looking for high scoring stocks. Once identified, one of the team is nominated to manage the verification process for that stock.
We test the PVT score and investment thesis through analysing the key drivers of PVT relevant to the type of company we’re looking at.
Company meetings are an integral part of our process but we don’t believe in having meetings simply because we can or to screen the market. Instead, we meet with companies when we need answers to specific questions such as the key drivers of return on capital and growth.
We believe that team debate is an important process in ensuring effective testing of the validity of a stock’s PVT investment case, its strengths and weaknesses.
In the weekly verification meetings, all new ideas are presented, debated and questioned before any investment is accepted into the portfolios.
The importance of an effective sell discipline
As well as identifying exciting opportunities that we want to buy, we also monitor every company already in our portfolios to know when the time is right to exit or sell a position.
We systematically monitor the PVT scores of all portfolio holdings in our quantitative analysis tool. When scores fall significantly, we re-verify the investment case and debate the investment’s position at the weekly meeting. A systematic sell discipline is critical. Our selling process is driven by the same PVT philosophy. Shares where potential is deteriorating, where valuations are less attractive following a period of outperformance, or where timing is no longer optimal will all be examined.
"The longevity and consistency of a stable investment process continues to reap benefits for us and our clients. It allows us to remain true to our investment beliefs and insulated from the distraction of day to day market movements. By combining quantitative analysis with the knowledge and experience of our fund management team we ensure that our focus is always exactly where it needs to be – on finding great investment opportunities."
Dan Hanbury, Head of Small Cap and Income strategies