The Global Opportunities strategy operates with an investment philosophy that has been cultivated and honed over the past two decades. This philosophy is built around the notion that:
- Every asset has a "fair value" that can be determined by intensive fundamental research
- Over time, market prices move towards these fair values
- We can consistently identify both cheap and expensive stocks relative to their fair values and thus make investment decisions that can result in superior long-term returns at appropriate levels of risk.
We seek to add value to clients’ portfolios by capitalizing on the mis-valuations that arise across the world’s equity markets. Our process is dominated by bottom–up stock selection, and our analysts closely scrutinize earnings, cash flow and dividend forecasts. These research results are input into our proprietary valuation model, which helps us identify opportunities where there are differences between our team’s opinion of fair value and those of other global investors. Our investment philosophy has neither a growth nor value bias.
Our Global Opportunities investment process focuses on bottom-up stock selection within each industry/sector based on fundamental research. This approach leverages our extensive research network to identify the most attractively priced securities on a global sector basis. The country allocation of the strategy is not predetermined, but is the result of our bottom-up stock selection.
The most distinctive element in our stock-selection process is our proprietary fundamental research, which is the primary driving force behind the value we add. The dividend discount rate (“DDR”) calculated by our analysts measures an individual stock’s internal rate of return. This helps us systematically capture the value-added insights of our research team.
Our valuation approach
Our analysts operate out of four regional centers: New York, Tokyo, Singapore and London. The analysts conduct extensive fundamental research into the companies they cover, visiting management, analyzing financial statements, etc. Based on this research, earnings estimates for each company are generated with an emphasis on forecasting each company’s normalized (mid-cycle or sustainable) level of earnings and the rate at which those earnings are expected to grow over the intermediate term.
The proprietary estimates generated by our in-house analysts serve as inputs into a valuation model, which uses them to synthesize a projected dividend stream for each company. The model then equates the present value of that dividend stream to the current share price in order to calculate each stock’s Dividend Discount Rate – a measure of each stock’s internal rate of return. The DDR serves as the primary valuation metric for the strategy. The higher a company’s DDR, the more attractively-valued the stock.
Buy and sell discipline
Securities are bought and sold by portfolio managers based on the DDRs and stock performance catalysts that may unlock a stock’s profit potential. We rank the companies within each sector to identify the most attractive opportunities. Stocks are purchased if they are attractively valued within their global sector and if they have clear catalysts that will enhance the long-run value of the company. Thereafter, if a stock appreciates significantly or a negative change is made in the earnings or cash flow projections for a company, the long term rate of return will decline and the stock will move down the Global Ranking Report. Based on the size of the decline and its valuation relative to its sector peers, the stock may be sold. Conversely, if the stock were to appreciate only modestly and remain undervalued relative to other companies within its sector, we would reassess our rationale for holding the stock. Additionally, we would reassess our holding if there were changes to the catalyst. Decisions are made with a 12-18 month time horizon.
We construct portfolios for our clients on an entirely bottom–up stock selection basis using the research of our analysts whose recommendations are input into our proprietary DDR model. The portfolio managers work with the team of global research analysts using the global ranking report to identify the most attractive stocks in each sector. The portfolio managers challenge the analysts’ assumptions and work with them to determine if there is a catalyst that may enhance the value of a stock. Portfolio managers then construct portfolios sector by sector, with each portfolio containing between 80-120 stocks.