Liontrust Responsible Capitalism Report 2024 - Flipbook - Page 66
Investment process
The Global Fundamental team utilises a number of investment
processes to manage funds. At the core of the team’s investment
approach is deep, fundamental research driven by original
thinking to find share price inflection points that can drive long-term
performance. The managers look for distinct inflection points and
drivers of returns for the different funds.
The Global funds’ investment process is based on the philosophy
that where multiple changes coincide, opportunities open up for
investors. Tom Record and his team look for companies that are
exploiting change to become stronger, better and more highly
valued in the future. The changes that the companies within the
funds seek to exploit sit along a range:
At one end is External Change. The catalysts for External Change
are wide ranging and may include the arrival of a new technology
that is transforming an industry, environmental change or a socioeconomic or demographic change that may take years to work
through.
At the other end of the range is Internal Change. These changes
enable a company to re-engineer itself so that its future is very
different from its past. Often these are contrarian investments where
we have confidence that management will rebuild a company after
a tough recent past. Internal Change catalysts include restructuring,
closing business lines, or pivoting to new business models and
products.
Tom Record and his team seek to identify companies that can
exploit multiple change catalysts as they believe this is often when
change is most pronounced and the potential opportunity most
advantageous.
The UK Equity Income process seeks high-quality dividend paying
companies with competitor powers. Their building blocks of
quality include strong and improving returns on capital, clean cash
generative financial models, prudent balance sheets, attractive
underlying markets, and skilled and motivated management.
66 - Responsible Capitalism Report 2022
Companies with at least one of seven competitor powers have
strong strategic traits that underpin persistent and predictable
profitability.
The process for the Tortoise Fund aims to deliver a positive absolute
return over rolling three-year periods. The fund managers seek to
achieves this by combining a bottom-up, stock-picking process
with detailed study of the macro environment and generally take
a “value” orientated approach to investing for both long and short
positions.
The Global Fundamental team use materiality assessments, which
are part of the team’s proprietary fundamental research. Materiality
assessments feed directly into the investment decisions the team
makes on behalf of clients.
Materiality assessments are the approach by which the team
examines and considers financial, operational, ESG, and any other
exposures faced by the team’s holdings. This approach renders
what the team believes to be a more accurate picture of the main
risks and opportunities that a company currently faces as well as
those that it could encounter going forward.
The team’s approach to materiality has three primary steps:
Identify and
prioritise (as
part of the team’s
fundamental
research)
Engage and
monitor
Score for
resiliency and
conviction
The aim of this process is not only to measure the likelihood and
impact of risks and opportunities that each holding faces, but
to understand and, in some cases, influence how a company
manages these exposures.