Our investment processes

The process seeks to identify companies that will benefit from the growth in the Asia Pacific (ex-Japan) region, have an attractive yield and give a greater chance of expectations being beaten. The process aims to avoid those stocks that are likelier to miss expectations. By targeting at least 1.1 times the dividend yield of the region across the portfolio, the fund managers believe this will ensure the equities they invest in are amongst the more conservative, better managed companies.

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The process is based on the belief the most important determinant of shareholder returns is company cash flows. The fund managers invest in companies that generate strong cash returns from their capital, appear cheap on those cash flows and are run by managers committed to an intelligent use of capital. They sell short stocks that are expensive, are struggling to generate any cash and are run by management investing heavily for future growth.

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The process seeks to identify companies that possess intangible assets which produce barriers to competition and provide a durable competitive advantage that allows the companies to defy industry competition and sustain a higher than average level of profitability for longer than expected. In the fund managers’ experience, the hardest characteristics for competitors to replicate are three classes of intangible asset: intellectual property, strong distribution channels and significant recurring business.

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The process seeks to find companies whose asset base and business are defended by an economic moat, such as a strong brand, niche products or a dominant market position, and where analysts underestimate future earnings growth or have undervalued the expected earnings growth. The fund managers use dividends as a proxy for earnings growth and expects to see dividends rising over time as companies increase pay outs to shareholders and earnings grow.

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The Liontrust Global Equity team believes that the key to replicable long-term investment outperformance is generating ‘idiosyncratic alpha’: returns that are independent of market returns and largely uncorrelated to the successes and failures of popular investment styles like growth and value. The team seeks to achieve idiosyncratic alpha through: collaborative idea generation and each member of the team having research responsibility for an industry sector or structural economic trends; conviction, with each stock in a portfolio having a meaningful weighting and being retained for the long term; and having three silos of stocks – Structural Growth, Economic Recovery and Special Situations – to provide low correlation with each other and to mitigate against the transitory fortunes of investment styles. The philosophy and process is implemented through a four-step workflow: stock idea generation, stock selection, portfolio construction and continual monitoring.

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The fund managers believe fixed income markets are inefficient and there are myriad ways of adding value to investors’ portfolios. The inefficiencies are caused by many market protagonists who are not price sensitive, ranging from the macroeconomic distortions caused by central banks to the idiosyncratic scenarios when companies need to raise debt finance and price accordingly. The Liontrust Global Fixed Income investment process is designed to take advantage of these inefficiencies through a thorough understanding of the economic environment and detailed bottom up stock analysis. The process uses the same framework to garner a thorough understanding of the economic environment and for bottom up stock analysis: fundamentals, valuations and technicals (FVT). These three factors are examined regardless of whether the managers are considering a duration position or an investment in a speculative grade rated company.

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The process is based on the analysis of economic, political, social and cultural developments to identify Macro-Themes. The fund managers define a Macro-Theme as an undiscounted, structural change in the process of realisation; and the related passage to theme-maturity, as the macro-trend. The fund managers believe this investment process equips them to locate unappreciated investment ideas and capture the full, long-term potential of each portfolio holding. There are four stages to the process: theme discovery; identification of theme-assisted and theme-impaired companies; bottom-up analysis of prospective investments; portfolio construction and management.

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The process is designed to target the outcome expected by investors in terms of the level of risk, as measured by volatility, of each model portfolio and to maximise the return for each portfolio while still targeting the investors’ level of risk. These two objectives are pursued through a quantitative and qualitative approach with four key stages to the process: the strategic asset allocation, followed by the tactical asset allocation, fund selection and portfolio construction.

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The Sustainable Future equity process seeks to invest in high-quality companies with robust business fundamentals, strong management and attractive valuations; adaptors and innovators capitalising on change, accessing new markets and opportunities and outperforming their competitors; and companies that are creating real and lasting value for shareholders and society.

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The Sustainable Future fixed income process invests in a focused portfolio of corporate bonds that the fund managers believe are attractively valued and take into consideration environmental, social and governance (ESG) factors by investing in companies that manage these exposures to minimise risk.

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