Our investment philosophy is underpinned by two key dynamics which we believe will drive performance over the long term. These are structural change and structural advantage:
- Structural change occurs in a company’s operating model in one of three ways. First, a restructuring of a company’s asset base can lead to a sustainable change in its prospects. Second, changes in the economic environment driven by long-term shifts in supply-side factors can have a fundamental impact on performance. Finally, shifts in patterns of consumption, led by changes in distribution of wealth or technological advances, can significantly alter a company’s marketplace.
- Structural advantage materialises when a company enjoys both above average growth and above average returns on a long-term basis. This can be due to the high barriers to entry in its industry, or a technological advantage that protects earnings from the general tendency to declining returns.
We recognise that portfolio performance is increasingly influenced by stock-specific factors, with diminishing country-related effects. We therefore believe that stock selection is the starting point for our investment process.
Our positive investment style means that every holding will be overweight relative to benchmark, and stock-specific risk substantially outweighs systematic risk in our portfolios.