Investment process
The research component of the investment process is a combination of a bottom-up and top-down approach.
Bottom-up
The bulk of the investment decisions are made on the basis of bottom-up company analysis. This process seeks investments that:
- Trade at a discount to calculated fair value.
- Have high internal rates of return.
- Reinvest earnings at rates of return in excess of the company’s cost of capital.
- Are favourably placed within a sector from a strategic perspective.
- Are likely to be involved in value-enhancing corporate activity.
- And, most importantly, generate alpha for the portfolio.
The process makes use of a wide range of valuation tools, which are brought together in a multi-factor ranking process as part of the stock selection process. The valuation parameters range from widely-used parameters to more proprietary methods. A large proportion of the valuation parameters used are based on cash flow.
Investments are taken on a long-term view - the investment team values a potential opportunity on the basis of the company’s long-term potential, which involves the assessment of the entity’s potential throughout various business cycles.
Top-down
The top-down component of the research process involves the modelling and formulation of the macro-economic framework for the company/sector evaluation and ranking process.
The purpose is two-fold. First, this involves setting commodity prices, currency exchange rates, interest rates, inflation rates, etc. Second, this serves as secondary overlay to the portfolio construction process helping identify macro-economic trends that may influence inter-sector relative performance.
Socially Rsponsible Investment (SRI) Policy
For our sustainable fund The Craton Capital Renewable, Alternative and Sustainable Resources Fund we have established additional steps in the investment process. If you require further information please contact us.
