Investment Process

Investment Process

The Manager's investment philosophy is based on the premise that financial markets and individual securities can and do deviate away from fair value. By detailed analysis of a range of valuation parameters, active management of a portfolio of equities can be used to generate an acceptable level of absolute return over a range of time frames.

Due to the relative levels of research coverage by the market, the Manager also believes that companies outside of the Top 100 will experience greater deviation from fair value.

A medium to long-term investment horizon is required and large non-investment driven cash flows can adversley impact long term performance.

The Manager uses a variety of sources to identify investment opportunities.  Due to the geographic location of its investment team, the majority of stocks covered have a presence in Western Australia.

A range of parameters are used to assess value, but a key input to the analysis is the expected growth potential of the company.

After completing the necessary analysis, a set of stock recommendations is presented to the Manager’s Investment Committee.

The Investment Committee  reviews the recommendations and put them in the context of the overall equity environment.  It then reviews the  current portfolio in light of the information presented to it and adjust holdings in the portfolio to ensure the targeted performance is achieved.

The Investment Committee will also consider the optimal instruments to achieve its performance objectives.  Where they are allowed, short positions may be used where a compelling reason exists.  Derivatives may also be used to generate additional income in the Portfolio or to protect the Portfolio from market downturns.

Risk Control

Performance of the portfolio's will be generated from investment in suitable stocks.  However, diversification of holdings will be used to limit the risk where the actual performance of individual stocks does not meet expectations.

Typical risk control features of a portfolio will include:

  • No one stock will represent more than 20% of the total Portfolio Value at the time of acquisition.
  • No investment will represent more than a 20% stake in the issued securities of a company.
  • It is anticipated that the Portfolio will consist of between 10 and 25 stocks, although more or less may be held depending on the number of securities identified that are expected to meet the performance expectations.
  • Where suitable stocks can not be identified, the portfolio may invest in cash.  Whilst unlikely over the medium term, the Portfolio may consist from time to time of significant cash deposits.
  • Any short positions will not represent more than 20% of the total Portfolio Value.
  • Leverage may be employed in the Portfolio, but total exposure will not exceed 120% of the Portfolio Value.

Permitted Investments

A typical mandate would allow the Manager to invest in the following types of investments

  • Listed Securities and unlisted securities;
  • Rights to subscribe for or convert to  securities (whether or not such rights are tradeable on a securities exchange); 
  • Securities for the purpose of short selling; 
  • Warrants or options to purchase any investment and warrants or options to sell any investment permitted under the Management Agreement; 
  • Discount or purchase of bills of exchange, promissory notes or other negotiable instruments accepted, drawn or endorsed by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or by any corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia; 
  • Deposits with any bank; 
  • Debentures, unsecured notes, loan stock, bonds, promissory notes, certificates of deposit, interest bearing accounts, certificates of indebtedness issued by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or any Australian government authority, or, if authorised by its Directors, a corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia; 
  • Units or other interest in cash management trusts; and 
  • Any other investment, or investment of a particular kind, approved by the client in writing