International Equity Strategy
International Equity Strategy

International Equity Strategy

 
 
 
Summary

The International Equity Strategy invests in a diversified portfolio of companies that are primarily domiciled outside of the U.S. The portfolio consists of a combination of high-quality companies characterized by high returns on capital and strong free cash flow generation, and more cyclical companies with reasonable and/or improving fundamentals, the mix of which varies over time based on valuation and company prospects. The Strategy seeks to provide superior returns over the long term by providing attractive absolute returns in rising markets, while offering a measure of downside protection in challenging markets.

 
 
Investment Approach
Philosophy

The International Equity Strategy looks to generate superior long-term performance by investing in two types of companies, attractively priced High-Quality Compounders, companies that have the ability to generate sustainably high returns on capital employed (ROOCE), and Value Opportunities which are more cyclical companies with reasonable and/or improving fundamentals that are trading at a sufficient margin of safety to compensate for their greater risk. The team believes that a portfolio consisting of both types of stocks, with the flexibility to adjust the mix dependent on price and prospects, has the potential to generate attractive long-term returns for investors.

The mix between High-Quality Compounders and Value Opportunities is not a top-down allocation and will vary across the market cycle depending on price and perceived prospects. However, the Strategy has typically maintained an overweight to quality companies given their potential for superior long-term compounding and overall contribution to the Strategy's long-term pattern of asymmetric returns.

The team believes that losing money is worse than missing the chance to make it. The team further believes that benchmarks are inherently risky and does not attempt to manage tracking error. Rather than relative risk, the team's primary concern is absolute risk - the permanent loss of capital. In keeping with the team's emphasis on bottom-up stock selection, risk is assessed at the stock level by evaluating company fundamentals, financials, management, price and what would go wrong. The team uses free cash flows over reported earnings to assess valuation.

 
Differentiators
Patience Is a Virtue

Compounding capital takes time. Markets, however, are obsessed with short-term results. By taking a longer investment view, we attempt to take advantage of any pricing anomalies versus a stock's long-term fair value.

A Sense of Perspective

Trying to beat the market every year is futile. We understand that what matters is capital preservation, particularly in tough years when our clients need performance the most.

A Balance Based on Price and Prospects

Our genuine long-term view and focus on price gives us the flexibility to exploit both high-quality and value opportunities in a time proven process.

A Strong Heritage

A disciplined, fundamental research-based investment philosophy stretching back over 30 years underpins the Strategy.

 
 
 
Investment Process
1
A Disciplined Bottom-Up Approach

The team follows a distinct investment process based on fundamental analysis and bottom-up stock selection, with sector, industry and stock weights driven by the team’s assessment of each stock’s quality and valuation characteristics.

2
Screening Universe

Approximately 1,000 stocks make up the Strategy’s investment universe. Stocks are screened based on financial metrics that the team believes are associated with High-Quality Compounders and Value Opportunities. The team looks closely at liquidity, returns on capital and valuations, filtering down the universe for investment candidates worthy of further fundamental analysis. Have high returns on capital been sustained, and is the company’s valuation fair value or better? That might indicate a potential High-Quality Compounder. A company whose valuation or price movements look interesting, or where returns look reasonable or unusually depressed may represent a Value Opportunity.

3
Kicking the Tyres

Once the initial universe has been reduced, the team conducts its own fundamental research and aims to meet company management, further assessing each potential stock candidate to establish whether it represents a High-Quality Compounder, a Value Opportunity or a Value Trap. The team seeks to understand the following:

  • What is the company’s franchise, and what are its growth prospects?
  • Will ROOCE improve, hold or fade?
  • Does the business have attractive market share and distinct competitive advantages?
  • Is the business subject to a higher degree of cyclicality or capital intensity?
  • What is management’s response to potential threats to the business?
  • What is the financial strength of the business?
  • Are management incentives appropriate?
  • How does management allocate capital?

When determining intrinsic value, the team focus on free cash flow (FCF) rather than accounting numbers.

4
Portfolio Construction

The investment case supporting each stock candidate is then discussed and debated as a team. Should the team decide to invest, the weighting of the stock is subject to the team’s relative conviction in the company, taking into account its overall fundamentals, current valuation and how it impacts the portfolio’s overall quality and upside potential.

The sell discipline will depend on the type of stock – High-Quality Compounders or Value Opportunities. Depending on price and prospects in the portfolio and market, the team may continue to hold High-Quality Compounder stocks at fair value. With Value Opportunities, a stock is typically reduced or sold if it reaches or exceeds its fair value.  Stocks are also reduced or liquidated if there is a material deterioration in the investment case.

 
 
Investment Team
Head of International Equity Team
26 years industry experience
Managing Director
24 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
8 years industry experience
Vice President
11 years industry experience
 
 
 
 

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