Our approach to your investment
Our approach seeks to take advantage of the market’s tendency for irrational extrapolation around change, identify great businesses that are not valued as such and build high conviction portfolios (30-60 holdings) with a capital preservation focus.
We aspire to grow client wealth over the long-term by generating absolute returns in excess of the benchmark at below market levels of risk.
We define risk as the chance of permanent loss of capital or unforseen volatility and, in this sense, we believe risk is best controlled by:
- Seeking resilient investments with a margin of safety and multiple ways of winning
- A deep understanding of portfolio holdings within the context of diversified sources of alpha
Equity investment returns are primarily driven by the:
- Economic performance of the business you own or business “resilience”
- Price paid or starting valuation
Business “resilience” is determined by the degree and sustainability of competitive advantage and is ultimately subject to ongoing tests as excess returns will attract change in the operating environment, including new competition, technological disruption, greater regulation and management missteps. Accordingly, in the long-term all businesses succumb to changes in the operating environment as described by the Antipodes Capital Lifecycle Model ©.
- We take a common sense, case by case approach to implementing ESG principles as part of our investment approach and, where necessary, will seek to engage with companies to the benefit of our investors
Our process can be broken down into four iterative steps as follows:
Our approach to idea generation can be best described as eclectic, that is, idiosyncratic curiosity combined with many years of experience. As part of this process, “force multipliers” play an important role in focusing team resources and these take two basic forms:
- Proprietary quantitative filters
- Qualitative input/signals
Any investment team, regardless of its size, represents a scarce resource relative to the opportunity set and should be managed as such. Once an opportunity has been identified, we perform an initial reality check before committing a large amount of research resource. This check will focus on three key areas:
- Margin of safety, that is the merit of the idea relative to the degree to which this may already be expressed in the valuation
- Multiple ways of winning, that is the investment outcome should not depend on just one single factor (or point of failure), rather multiple factors that will contribute to expected outcome
- Context within existing portfolio, given our desire for non-correlated sources of alpha
Our broad approach is fundamental research within a global context. We strive to filter short-term noise with the goal of improving our longer-term judgement. Further, team alignment results in a naturally collaborative culture. To maximise the benefits of peer review without diluting overall team focus, we employ a system where each major research project has a lead analyst, but is supported by a secondary analyst (buddy), who acts as a sounding board on the project. We believe this both strengthens the research process and allows for earlier identification of flaws in the investment case.
If an idea passes the initial reality check, the research process will move forward and ultimately deliver a research note covering seven key areas of study.
Our goal is to build resilient portfolios that maximise risk-adjusted returns based on the following principles:
- Diversified sources of alpha and weighted according to risk/return profile
- High conviction, that is beyond 30 key ideas the benefits of diversification tend to be offset by conviction drift
- Where permitted, use shorts and currency positions to offset unwanted risks and protect from tail risk
- Reduction in the level of unknown portfolio risk by calculating various factor exposures and stress testing
To learn more, please visit the Blog.