Northcape

Investment Style: Core (Growth bias)

Northcape Capital Pty Ltd (Northcape) was established in 2005 and is an independent, privately-owned investment manager dedicated solely to the management of Australian equities. Northcape is majority-owned by its four founders, a significant minority interest now also held by members of the small-cap team.

Northcape believes that value can be added consistently by taking advantage of short-term market inefficiencies through performing thorough bottom-up company research. Northcape advocates a team structure that allows freedom for the exercise of analysis, investigation, valuation, and judgement. The firm believes that analysts prosper within an investment team that encourages pooling of knowledge, but allows full responsibility for stock decisions. The overall portfolio is an aggregation of each of the sub-portfolios of Northcape's four individual portfolio managers/analysts. Portfolios are expected to have a mid- to large-cap bias.

The investment process contains four main steps: screening, fundamental research, peer review, and portfolio construction. Each portfolio manager/analyst has dedicated sectors to cover and it is the individual's responsibility to determine which stocks to research in detail based on their knowledge of each sector. No set quantitative screens are applied to the initial investible universe.

Northcape does not believe that there is a single best way to analyse a company. Research therefore involves analysis of a number of qualitative factors (such as industry outlook, strategic positioning, competitive advantage, and management), and quantitative factors (such as margin strength, return on funds employed, gearing ratios, generation of free cashflow, and valuation ratios).

The portfolio managers and analysts each select around 10-20 stocks for potential inclusion on an ‘Approved List', which the team then subjects to peer review. After this, the final ‘Approved List' is expected to comprise around 60-80 stocks in total and forms the universe from which sub-portfolios are constructed.

The four portfolio managers/analysts then construct individual sub-portfolios from the ‘Approved List', using their own approach. In the case of the core strategy, sub-portfolios are limited to a maximum of 25 stocks each. Northcape then constructs a combined portfolio, initially on the basis that all four sub-portfolios have an equal weighting in the aggregate portfolio. Core portfolios are expected to hold 30-40 stocks.

Northcape's investment team principally comprises the four founding members who have dual roles as portfolio managers/analysts: Rob McWilliams, Rob Inglis, Craig McCourtie, and Steve Gliddon. The team is supported by dedicated analysts as well as small-cap portfolio managers John Whiteman and Mike Cowin.