The first stage in the decision process is asset allocation and country allocation. We make five-year earnings projections for the fixed income and equity markets in our universe. This framework allows us to determine the relative value across markets and from this we derive our asset allocation and country allocation strategy.
Our process is a mixture of asset, country allocation and stock selection.
We measure relative value in equity markets in the following way:
Current Dividend Yield + Forecast Long Term Earnings per Share Growth (expressed in real terms).
The process involves integrating many sources of information with emphasis on our in-house research expertise.
We do not invest in any country which does not satisfy our minimum requirements in relation to accounting standards, investor protection and political stability.
Following the country allocation decision, we use a disciplined, bottom-up process to determine individual stock value. We look for:
- Well-priced companies that are leaders in their industry
- Superior management and a sound capital structure
- Medium-to-large capitalization companies within their respective markets
The next step in our process is to perform a rigorous financial analysis to help determine earnings per share and total return expectations for selected companies. This helps us understand the dynamics of:
- Company growth
- Earnings quality
- The likelihood of trends being maintained
The analysis is comprehensive and includes a retrospective five-year study of the balance sheet, income statement, the statement of changes in the financial position, and a management interview.