At this point, they perform fundamental and valuation analysis to model the revenue and forecasts of the company, as well as meeting company management.
They score each company on nine criteria, each based on the characteristics they believe a franchise should exhibit.
The final stage is portfolio construction.
This is executed solely on a value ranking system, with positions sized between 1 per cent and 8 per cent, depending on their theoretical upside.
The portfolio will vary between 25-50 names, depending on the number of stocks in the investable universe that are showing upside potential.
When markets are high, the fund has been more concentrated.
Roughly two-thirds of the fund (64.6 per cent*) is held in North American equities, although its largest individual holding is in Italian gambling stock IGT (6.8 per cent).
The fund has reasonable overweights from a sector perspective to healthcare (20.5 per cent), consumer discretionary (20.1 per cent) and industrials (19.3 per cent).
The team excludes certain sectors, such as banks and natural resources, which tend to have less predictable earnings.
The resulting group of companies in the portfolio possesses a combination of predictable earnings and large competitive advantages that has, in the past, enabled them to sustain strong returns for long periods of time.
The managers’ systemic approach to portfolio construction, which also removes behavioural biases, offers invests a slightly different option in the global equities space.
Darius McDermott is managing director of FundCalibre
