Our emphasis is on bottom-up stock selection and fundamental analysis is the cornerstone of our decision making process.
The investment process has five stages; four relating to stock selection and one to portfolio construction. It is rigorous and structured and is designed to deliver repeatable, long-term performance.
These stages are summarised in the schematic below:
Stage one identifies the global, macroeconomic factors we believe will lead to out-performance.
- Structural changes – asset-based restructuring: companies that have been poorly managed or that have lost focus in terms of their core business but which have a clear and coherent vision for improvement
- Structural changes – supply-side: companies operating in markets characterised by supply-side constraints, which have experienced long periods of under-investment, and will require substantial lead-times to turnaround their businesses
- Structural change – demand-led: companies benefiting from changing habits of spending, savings and consumption worldwide
- Structural advantage – competitive advantage: companies with strong products operating in markets with high barriers to entry, and with above average growth and returns on invested capital.
Stage two screens for lifecycle characteristics on both a quantitative basis using lifecycle analysis, and a qualitative basis using scorecards. Both these techniques are proprietary to Aviva Investors.
Stage three involves fundamental analysis, with an emphasis on management, financials, business models and valuation. Only companies with a sustainable business model and absolute valuation upside pass this stage.
Stage four - creating the buy list. Our analysts present detailed stock-recommendations to their team, substantiating why the stock should be bought, that earnings growth will be sustainable, and that valuations offer absolute upside. These are debated in a robust fashion, with consensus required before a stock joins the buy list.
Stage five is portfolio construction. Our fund managers build portfolios from the ‘live’ buy list consistent with clients’ risk tolerances, and once added, stocks are immediately purchased across all Global Equity funds.
Every holding across all of our portfolios is an active and overweight position. The size of our active positions are a function of expected stock upside, degree of conviction and liquidity. In addition, stock weightings and the number of individual stock components will vary according to the risk tolerance of the client.