A fundamental, bottom-up process is core to making investment decisions. Our team formulates a 12-18 months outlook for the South African and global economies (which is revisited on a quarterly basis). This outlook incorporates, on a macro level, the level of economic activity, currencies and interest rates, amongst others. We then incorporate the operational opportunity set for each company based on our extensive analyses of financial statements (income statement, balance sheet and cashflow statement).
The macro factors, combined with our fundamental company analyses, are then used to divide our investment universe into relative performers – industries and companies expected to excel over the next 12 months, and vice versa. After applying a corresponding relative rating to each company, an intrinsic value for the company is calculated by applying our fundamental results – earnings estimates, cashflow projection, net asset values, etc. Only then do we look at current market prices, and we base our investment decisions on where the intrinsic value of the company is relative to the market price.
We like to stay close to the companies that we invest in. The team engages in regular contact with our top holdings through management contact, site visits and broker/company presentations. This allows us to get an early indication if “things are changing on the ground”.
We support our investment strategy with a rigorous focus on risk management. Daily independent mandate compliance ensures that the Funds always operate within the stated mandate limits. We also place great emphasis on cash management, knowing at all times where we want to enter and exit strategies and trades.
Simply, we buy companies where there is upside to the intrinsic value, and sell those with very little upside, or even downside.