Ibbotson Australian Shares High Alpha
BlackRock Scientific
Investment Style: Long/short
BlackRock Scientific is the former Barclays Global Investors Australian funds management business, which BlackRock acquired in 2009.
The investment philosophy used combines traditional investment insights and quantitative techniques. Outperformance is generally expected to be achieved solely through quantitative stock selection, with style and other factors controlled by portfolio optimisation.
BlackRock Scientific's investment process is entirely quantitative and includes analysis of data from a wide variety of external sources. The process involves three steps prior to conducting any trades: research; quantitative modelling (which includes data collection and cleansing); and portfolio construction.
The research process starts with the identification of ideas and seeks to ensure that all of the investment strategy inputs are 'theoretically sound and empirically valid'. There are four streams of quantitative models: earnings expectations; relative value; earnings quality; and market and management signals.
In combination, these measures enable the firm to rank every security on an expected active return (or alpha score) basis each day. Stock rankings are produced separately for each signal. In terms of portfolio construction, BlackRock optimises the portfolio subject to tight risk controls. Portfolios have a large number of small active positions and the portfolio's active risk is focused on stock selection.
The team includes portfolio managers, quantitative research analysts, and equities system analysts.
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. Concentrated portfolios are expected to hold 10-20 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.
Orbis
Investment Style: Contrarian
Orbis Investment Management (Australia) Pty Limited (Orbis) established an Australian equities capability in 2005. Orbis is ultimately jointly-owned by Simon Marais (Managing Director and Portfolio Manager) and Orbis Holdings Limited, a member of the Bermuda-based Orbis Group (founded by Allan Gray of South African-based Allan Gray Limited).
Orbis believes that while sharemarket prices are the best indicator of value for companies over very long periods of time, substantial deviations of those prices from true value do occur over the short to medium term. Orbis focuses its efforts on calculating the real underlying value of various companies using the extensive technology developed by the Orbis Group.
Equity portfolios managed by Orbis are expected to vary significantly from the underlying market benchmarks and exhibit contrarian characteristics such as holding stocks out of favour with the market and which have significant negative news surrounding the company or industry. Portfolios typically exhibit value characteristics such as low price/earnings and price/book ratios. Portfolios are expected to hold 30-60 stocks on average over the long term.
Orbis' investment process has four main steps. These are ideas generation and quantitative screening, fundamental analysis and peer review, portfolio construction, and trading. The process begins by screening the investible universe for ideas using Orbis' proprietary quantitative screening tools. Analysts have the ability to tailor the factors within the quantitative framework to suit the individual sector's characteristics.
The output then forms a list of stocks for further fundamental research. Analysts construct a valuation model and research report which typically includes earnings forecasts, an investment thesis, major company-specific risks, analysis of financial accounts, and latest operating results. The firm keeps valuation models relatively simple in an attempt to isolate key drivers of a company's expected return.
This analysis is then presented for peer review at a Policy Group meeting of all investment team members. Once the team is comfortable with the investment thesis, the stock is purchased for the portfolio. Portfolio weights are derived from discussion with the team but are ultimately the decision of Simon Marais. Orbis uses proprietary analytical tools to assess the incremental impact on the characteristics of the overall portfolio of changing an individual stock position. Portfolios are expected to hold 30-60 stocks.
The investment team is led by Simon Marais (Managing Director and Portfolio Manager) and includes three analysts who conduct quantitative screening and fundamental research. All trading is conducted out of Bermuda by Orbis' global trading desk.
Platypus
Investment Style: Growth
Platypus Asset Management Limited (Platypus) was established in 1998 by Donald Williams and Nicholas Wright and is dedicated solely to management of Australian equities. Platypus is jointly-owned by Platypus Asset Management Holding (PAMH) and Australian Unity which acquired its stake in late 2005. Don Williams and Nicholas Wright are the major shareholders of PAMH.
Platypus believes that companies should exhibit a track record of earnings and preferably dividend growth to be considered a viable investment proposition. The fund manager also believes that share price performance over the medium to long term is driven by consistent earnings growth, so this is the primary focus.
Platypus is of the view that individual companies, sectors, and the market generally tend to trade in well-defined valuation ranges, which provide useful buy and sell signals. The house view is that almost all stocks suffer from significant mispricings from time to time, and that these events offer Platypus valuable trading opportunities irrespective of the long-term investment proposition. Portfolios are expected to have both growth and mid- to small-cap biases on average over the long term.
Platypus' investment process contains five main steps: quantitative screening, quantitative analysis, qualitative analysis, macroeconomic/sector analysis, and portfolio construction.
The process begins by screening the universe for stocks with forecast earnings per share growth of greater than 10.0 percent over the next three years. The firm then undertakes quantitative analysis, breaking down the composition of earnings further, on the remaining stocks to identify companies to be researched in greater detail.
The next stage of research typically involves industry analysis, competitor/supplier analysis, and meetings with company management. Macro/sector analysis is a continuous feature of portfolio construction, but is typically also included as part of the qualitative analysis at the stock level.
Once this part of the process is complete, Platypus is typically left with approximately 60 stocks, 30 of which are already in the portfolio, and 30 of which are potential candidates for inclusion. The house constructs portfolios giving consideration to each stock's liquidity, return profile, and risk contribution. Platypus tends to add to the initial investment as confidence in the position increases, most often around an event such as an acquisition, placement, or earnings outlook/upgrade. Portfolios are expected to hold 25-35 stocks on average.
Platypus' investment team is headed by Don Williams (Portfolio Manager, Director), assisted with ideas generation and company research (both qualitative and quantitative) by two fundamental analysts and a quantitative analyst.