FUND OVERVIEW
The Glenmore Australian Equities Fund seeks to invest in quality companies generating strong cashflows at attractive valuations. The limited fund size allows significant investment flexibility with the aim of generating investors’ excess returns.
The Fund has a diversified portfolio of Australian equities and is index unaware with an absolute return focus. The Fund aims to generate strong absolute returns over the medium to long term.
There is a high level of investment transparency and liquidity with monthly unit pricing, subscription and redemption.
Investment Process
Glenmore will use a fundamental, research driven investment process. We aim to identify shares that we believe are undervalued and are likely to rise in price. The main driver of identifying potential investments will be bottom up company analysis, however macro-economic conditions will be considered as part of the investment thesis for each stock.
Investment philosophy
Glenmore’s investment philosophy is based on the notion that stocks can become periodically mis-priced (both under and overvalued) due to a range of factors, such as:
Market underestimates company’s earnings potential
Excessive focus on short-term earnings outlook
Market underestimates ability for management to increase value of business through accretive reinvestment of excess cashflows
Market underestimates risk of structural change on an industry
Market underestimates degree of cyclicality of company or sector’s earnings
Glenmore does not believe in “value” or “growth” classifications for stocks. Growth is simply a subset of value and investment candidates can be found from many different areas of the stockmarket. Glenmore believes stocks can be undervalued based both (a) on being cheap on conventional valuation metrics and also (b) due to earnings growth being under appreciated.
Idea generation
New stock ideas can come from a wide range of sources, such as reading annual reports, company announcements, conference calls, industry reports, media articles, attending investor conferences, analysis of other stocks and broker research.
An extensive travel program is expected to provide opportunities to observe operations of a range of businesses firsthand, which can often generate investment ideas. Glenmore believes regular meetings with company representatives is a superior way of gaining insight compared with group presentations or conference calls.
Quantitative screens will also be used as a tool to potentially identify stocks trading at cheap valuations.
Fundamental Stock Analysis
Once a stock has been identified for further analysis, detailed fundamental analysis is undertaken, with the key question being “What is the intrinsic value of the stock?”
Stocks will be valued using a combination of measures including discounted cash flow analysis, price/free cash flow, price/earnings, Enterprise Value/EBITDA, and dividend yield.
Other key factors include:
Glenmore’s view on the likelihood of the company having scope for positive earnings revisions, as this is a key driver of the direction of stock prices.
The level of free cash flow generation of the company
The ability of the company to reinvest free cash flow at attractive rates of return
In addition to identifying stocks from a “bottom up perspective”, Glenmore will also seek to identify any macro factors and trends affecting a company.
Portfolio construction
Stocks that are candidates for inclusion in the portfolio are ranked in order of forecast total return. This quantitative ranking is then used as the key generator of potential stocks for the Fund, however qualitative factors are also considered where relevant. Stocks with the strongest combination of valuation upside and qualitative factors will be used as the basis for portfolio construction. The process is fluid and as valuations of stocks, company specific factors and general economic conditions change, stock weights in the fund will be adjusted accordingly.
The Fund will be relatively concentrated to ensure the Fund benefits from the highest conviction stock ideas, while maintaining an acceptable level of risk.
Risk Management
Disciplined risk management is a key part of the investment process. Glenmore will aim to monitor and minimise risk to decrease return volatility. Key features of the risk management process include:
Maintaining a diversified portfolio, in terms of both stock and sector weightings;
Avoiding companies that have unacceptably high risk business models and/or volatile earnings streams;
Constant questioning of potential risks to the investment thesis for stocks in the fund;
Being willing to acknowledge investment errors;
Monitoring of key risk factors with Apex Fund Services (Fund Administrator) being automatically notified of any breaches;
Monthly reporting of Fund returns to investors