Global Innovation team

The team seeks to generate strong returns by investing in innovative companies. They believe that innovation is the single most important driver of stock returns, underpinned by three pillars:

• Innovative companies deliver superior operational performance and shareholder returns over the long run.
• Innovation is much more than technology and is the key to success in every sector.
• Innovation is complementary to the traditional investment styles of value and quality, and a key part of an investment portfolio in the 21st century.

Stage 1

The team sets their investible universe to only those companies that are listed, liquid (with a market capitalisation above $1billion at the time of purchase) and have the resources to innovate (based on metrics of financial strength).

Stage 2

The team manages the Global Innovation 200 watchlist, an ever-evolving list of the most innovative companies around the world across all sectors and regions. Every company that makes it onto the list has four attributes:

• Innovation: Creates genuine value for customers by driving down prices or providing more for its customers' money.
• Barrier: Has strong barriers to competition to capture value for shareholders.
• Management: Has good management with the right incentives and ability to execute.
• Cash returns on capital: Can convert its investments in innovation into cash.

Stage 3

The team identifies the price they are willing to pay for a company using a 10-year DCF model. Their hurdle to invest is an anticipated 15% annual compound return. As part of valuation the team conducts a risk assessment, covering financial, disruptive innovation and ESG factors.

Stage 4

The team manages the portfolio based on the following principles:

• Stock weights are determined by each stock's current valuation upside and its contribution to the diversification of the portfolio.
• Portfolio fundamentals are monitored through management meetings, company results, and announcements and industry research.
• The team's typical intended holding period is three to five years. Stocks are sold for three reasons: they hit their target price, a better opportunity is identified on the watchlist or there is a breakdown in fundamentals.

The Global Innovation Funds promote the following characteristics through risk assessments and screening:  a reduction in carbon emissions, positive human rights practices (elimination of forced, bonded, and child labour across all operations and supply chains, fostering a workplace culture that values diversity and inclusion, offering equal opportunities to all individuals regardless of race, gender, age, religion, or sexual orientation) and a reduction in social risks linked to controversial weapons and tobacco.

The promotion of the environmental and social characteristics of the Funds will be primarily achieved through the following:

• Assessing emissions reductions and progress in respect of targets;
• Assessing human rights matters;
• Screening for, and exclusion of, companies with exposure to controversial weapons (such as cluster munitions, land mines, bio/chemical weapons, depleted uranium, and white phosphorous / blinding agents) and companies deriving more than 10% of their turnover from tobacco production.

As part of the fund managers strategy, the team also carries out risk assessments, focusing on four primary steps:

1. Identify;
2. Assess;
3. Engage and monitor; and
4. Risk score.

As such, the GF Global Innovation Funds seek to comply with the provisions of Article 8 of the SFDR.

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