Our process is anchored in the fundamental analysis applied to every level of a portfolio, which forms the basis of all our broader strategic themes as well as sector and security selection decisions. Intrinsic valuation is concerned with calculating the fundamental value of assets, markets and currencies. Intrinsic value at the strategy level is a function of the cash rates, inflation and appropriate risk premiums for the asset/instrument. At the issue level, intrinsic value is determined by the cash flows that an asset will generate for its present and future owners and of the discount rate appropriate to those future cash flows.
Fundamental valuation models are supplemented by market behaviour analysis. This analysis is concerned with understanding why market prices are not reflecting intrinsic value. This understanding is critical if informed decisions are to be made regarding strategies in actively managed portfolios. Both intrinsic valuation and market behaviour are required to analyze the present state of the market. Combined, these two types of analysis lead to the identification of active investment opportunities.
The objective of market behaviour analysis is to understand market price discrepancies from intrinsic value whether we perceive a market is overvalued or undervalued. We look to identify influences on investors’ risk tolerances, factoring them into our decisions. For the investment decision-making process, market behaviour analysis is critical in influencing the timing and magnitude of strategy changes in actively managed portfolios.
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