An intensive due-diligence research process allows us to apply a high-conviction investment strategy. We invest in 25-35 companies that we consider to have the best prospects for strong long-term investment returns. Over a full market cycle (which we define as the stock market going from peak-to-peak in 5-7 years), we aim to exceed the total return of the benchmark – MSCI World Small-Cap index – by 3% per annum.
Our definition of small-caps is based on the global universe in which we invest. When we buy a new investment, the market cap ranges between Eur 250 million and 5.0 billion. We avoid getting trapped in stocks that cannot be sold by limiting ourselves to stocks that have enough liquidity to trade in and out without significant market impact. Geographical & sector allocations are driven by stock selection while avoiding extremes.
We invest like owners and consider each investment as a long term holding. Our focus is on a company’s long-term prospects, rather than the next quarterly results.
Avoiding permanent capital loss is key to achieving strong returns.
That’s why we stick with the following principles:
- We must establish that a company’s shares trade at a significant discount to our calculated intrinsic value;
- We only invest in companies with characteristics such as intellectual property, brands, and recurring revenues;
- We look for management teams that are aligned with shareholders and have a proven track record;
- We must be able to understand a company’s business model. Simplicity is a great advantage. That’s why we generally stay away from sectors such as biotech;
- We determine whether management is in control of its most important value drivers. As a practical example, a mining company generally isn’t;
- We avoid unproven businesses, single-product companies, and companies in need of reinventing themselves every 5 years.
Environmental, social and governance (ESG) issues are fully integrated into our stock selection process. We are signed up to the United Nations-supported Principles for Responsible Investing (UN PRI) and support the UN Global Compact. Read more here.