One of the key advantages I believe we bring to the European equity market is our globally integrated research footprint. That allows us to research European stocks from a global angle and in some instances allows us to find research answers that are very different than what a regionally oriented person might be able to cover.
What we have here in Europe is a team of very experienced investment professionals who have a background either in industry or else as industry consultants and what that enables them is to bring a view of working inside the companies and so they develop quite a different perspective from your more traditional investment approach. And their experience means that we can approach companies from a business owner mindset, to really understand what’s going on behind the scenes in companies.
We believe that high conviction is vital for delivering superior investment returns and what high conviction means to us is really using our research to do some extensive due diligence on a small number of stocks which we think have the potential to deliver substantial returns and to put greater amount of our funds capital into those stocks.
I think high conviction really means having confidence in your research. Conducting very detailed, bottom-up due diligence on the companies that we invest in and then reflecting that by taking large positions in those companies. Quite different to what you would see in a diversified, benchmark-sensitive portfolio.
I think our investors really benefit from us being benchmark agnostic because being agnostic toward the benchmark really allows us to go find interesting investment opportunities that might be outside of the benchmark. Typically, these are companies that might be a bit smaller cap in nature, they haven’t made it into the benchmark and are therefore not on most investors’ horizons.
At the end of the day, what a company does and the value it creates is measured by cash flow. Accounting measures have drawbacks and follow all kinds of different rules, and quite frankly can be manipulated by management teams to say things that perhaps aren’t reflected by the true reality of what’s going on underneath. By focusing on cash flows, you can eliminate all that noise and all that manipulation by management teams to what really truly matters.
PRIVATE EQUITY-LIKE APPROACH IN PUBLIC EQUITY MARKETS
Tawhid Ali: It requires us to really understand the companies we are investing in and the industries they operate in. It focuses our attention on the cash flows that these companies throw off and finally it allows us to take a long-term view towards thinking about investment returns. If you do all these three things together it allows you to really filter out some of the other distracting noise that might be going on in the world. That really helps you focus on the things that are going to make you money.