The detailed bottom-up process applied requires a unique approach and internal “stress testing” of investment cases. Investment cases are evaluated by a team process, with the portfolio manager making the ultimate investment decision.
The investment universe is screened for suitable companies. Each fund has an inner circle of 80-100 companies on its radar screen. Close contact with brokers, analysts and companies supports the screening process.
Each analyst builds a detailed financial model of the evaluated company and writes an investment case. The investment case includes NAV calculation, near-term NAV growth, NAV multiplier for target price, recommendations and a 12 month target price.
Every investment case is then discussed within the team, with each analyst providing feedback on the case. Only when a majority of analysts supports the case, is a decision taken. Weighting recommendations are decided based on liquidity factors as well as country, management and execution risk considerations.
For the Earth Sustainable Resources Fund only: companies that seriously violate the United Nations Global Compact (UNGC), as well as companies that are active in the arms and armaments, coal and/or tobacco sectors, up to certain thresholds, are not considered for the fund. Companies are further assessed from a sustainability perspective in the areas of economic, environment, social affairs and governance (EESG) on the basis of individually weighted assessment points. Each of the four EESG aspects are weighted equally in the analysis. With a score of 3.0/5.0, the company qualifies for a discrepancy check against Sustainalytics research as well as a controversy check, which involves daily monitoring of 700,000 news sources from around the world to identify those news stories that could be significant from an ESG perspective.
The portfolio manager then makes the decision. Although ultimately responsible for performance tracking and the portfolio, the team approach to the stock picking process provides a high confidence in stock selection.
The stock is screened and continuously re-evaluated when reserve and resource updates are issued, M&A activity or other major newsflow occurs. The target price can be adjusted accordingly. The stock sell recommendation is made when the calculated target price has been reached. Fundamental valuation takes precedence over following mainstream opinions.
