The team believes that a small number of leading companies deliver superior portfolio returns over the long term, if purchased for ‘good value’. For this buy-and-hold strategy, the team applies key success factors including stringent selection based on financial criteria; deep analysis of a business model’s risks and benefits (including pricing power and financial strength); buying quality stocks when investors doubt their prospects; and practicing patience (holding quality stocks providing no valid reason exists to sell). Through this approach, the team believes it is possible to participate in the value creation process of superior business models and deliver attractive returns for investors.
Investment Process
The team uses a disciplined, bottom-up process, with an ESG framework integrated throughout. The process starts with a strict quantitative screening of the TOPIX universe. Using four financial filters (growth rate, profitability, capital intensity and balance sheet structure), around 100 successful businesses are identified. In-depth, fundamental company analysis is conducted, focusing on pricing power and financial strength, to understand the past success of these businesses. If the business model is sustainable, the team applies fair value analysis, using their own estimates. An investment is made when a company’s price offers a minimum of 30% discount versus its calculated fair value. The concentrated portfolio of 20-30 large and mid-cap stocks is diversified across business models and rebalanced annually to equal weights.