investment process

SOUTH AFRICAN EQUITIES

Long-term portfolios follow a strong bottom up security and financial instrument selection bias based on value, growth expectations and in certain instances specific opportunity. During this process of selecting securities and financial instruments for inclusion in a portfolio quality exists as a fundamental theme throughout.

In order to be considered for selection, a company must meet stringent qualitative criteria. These criteria include honest and competent management with long-term vision, a sustainable competitive advantage within its industry, financial strength, as well as a good track record. In addition to this, the company’s respective industry should feature good long-term growth prospects.

Following the successful assessment of these qualitative issues through fundamental research, attention is then turned to valuation. Earnings are forecast over a three-year time horizon. These earnings are then rated in the context of the overall market and relative value is assessed. The process is designed to identify those businesses whose current market prices are lower than their intrinsic values. These value companies often exhibit characteristics which include high dividend yields, low price to earning and low price-to book ratios.

The process that is followed also assists the identification of those companies that are able to grow earnings at a faster and more consistent pace relative to the overall market. While quality and value are primary drivers in the construction of portfolios, forecast risk, tradability, market capitalisation and risk diversification are also persuasive factors when achieving an optimal portfolio stock mix.