Global Quality Strategy
Global Quality Strategy

Global Quality Strategy

 
 
 
Summary

The Global Quality Strategy is a concentrated, global equity strategy. To achieve the investment team's aim of compounding shareholder wealth at attractive rates of return over the long-term, the strategy focuses on high quality, resilient, well managed companies.

 
 
Investment Approach
Philosophy

The team believes there are two key tenets to investing: first, that the best route to long-term returns is through compounding and providing a measure of relative downside protection; and second, that high quality businesses can generate strong returns over the long term. Such businesses are typically built on dominant market positions, underpinned by powerful, hard-to-replicate intangible assets that can generate resilient, high, unlevered cross cycle returns on capital. Other characteristics are: resilient revenue streams, pricing power, typically low capital intensity and the opportunity for organic growth.

These companies are rare. High quality management is critical. When evaluating the quality of a management team, we seek evidence of disciplined capital allocation and distribution practices, as well as remuneration or incentive policies aligned with their shareholders.

The team’s primary worry is about permanent loss of capital rather than relative risk; losing money is worse than missing the chance to make it. The team does not worry about tracking error, short-term macro noise or the latest fad. Instead, risk is managed first and foremost at the company level, aiming to avoid companies where any form of franchise, regulatory or management risk that could result in diminishing returns. The team also believes there is an inherent risk of overpaying for high-quality companies. Consequently, the team uses ongoing and rigorous fundamental analysis to assess the fair value of each stock. According to the team's research and their investment philosophy, only 200 to 250 companies meet their quality standards.

 
Differentiators
Defensive characteristics

The team’s research shows investment in high quality companies, which exhibit characteristics such as strong franchise resilience, high and recurring cash flow generation, low capital intensity and minimal financial leverage that have historically generated competitive risk-adjusted returns across various market cycles.

Team of patient investors

The team’s long-term investment horizon seeks to allow these rare, high quality compounders to capitalize on their financial characteristics, leverage their well-managed intangible assets and compound shareholder wealth over time. The average annual turnover of the strategy is expected to be 20% to 30%.1

Managing the risks that matter

The team believes that quality compounders are less vulnerable to economic volatility, while indices, in their view, are inherently risky. They believe that relative measures of risk fail to capture the chance of losing money. Accordingly, they seek to minimize loss of capital and focus on the resiliency of a franchise, while trying to avoid any company which exhibits any deterioration in its management quality, its financial health or its valuation.

 
 
 
Investment Process
1
Quantitative Research

The team screens for companies that possess the financial metrics the team believes are associated with high quality companies. The key characteristic of these companies is they combine sustainable, high unlevered ROOCE with low volatility of unlevered EBITA margins resulting from a combination of recurring revenues, high gross margins and low capital intensity.

2
Qualitative Research

Each candidate is assessed for the depths of its quality characteristics, as described above, with particular attention paid to: the quality and resilience of the business; its overall financial strength; industry position; and management quality. An internal research report is created by a member of the team and this is then discussed at the portfolio review meeting. The report includes an assessment of the franchise and management quality, strengths and risks to the investment case, insights from meetings with management, historical and projected key financial ratios under various assumptions and an assessment of the stock’s valuation. The team will decide if an investment should be initiated. The team uses the same fundamental research to monitor portfolio holdings.

 
 
Portfolio Managers
Head of International Equity Team
26 years industry experience
Managing Director
16 years industry experience
Executive Director
20 years industry experience
Executive Director
20 years industry experience
Executive Director
16 years industry experience
Executive Director
18 years industry experience
Executive Director
10 years industry experience
Executive Director
9 years industry experience
Vice President
12 years industry experience
 
 
 
 

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