Bottom-up – fundamental analytic and quantitative elements in all phases of the investment process
Stocks and bonds are picked based upon our investment philosophy and upon thorough company analysis. For this purpose, in turn, qualitative and quantitative criteria play a leading role, along with intuition and reason.
The objective is to earn a positive yield with a reasonable risk, by picking stocks and bonds that best fit into our previously selected distribution of asset classes.
Our qualitative stock picking involves searching for companies featuring a solid, sustainable business model that we completely understand.
When it comes to stocks, we focus on two types of securities: Schumpeter stocks and innovative disruptors. As for bonds, we search for solid debtors that throw off high yields and exhibit a balanced opportunity-to-risk ratio.
We use the term Schumpeter stocks to outline companies acting in monopolistic structures (great market power, high margins, and high barriers to entry) and which possess sustainable business models, leading in all market phases to relatively stable profits that are paid out in good part as dividends.
Innovative disruptors are companies that challenge traditional markets and have at their disposal great innovative power and strong growth. What is characteristic here are not so much the dividends, but rather growth.
Intuition & reason
Intuition is the ability to discern patterns in a specific situation and to align these with one’s own experience. Reason – in funds management – means proceeding in a carefully planned, analytic manner supported by a model.
For us, successful funds management consists of the optimal interplay of both spheres, coupled with healthy common sense.
When we select stock in accordance with our quantitative selection of securities, we do so pursuant primarily to risk factors: value (favorably assessed stocks); momentum (“past winners”), low-beta (defensive stocks), and quality (companies having stable yields and cash flows). In the bond area, we focus on carry.
In contrast to the classic selection criteria, empirically seen risk factors offer a more robust diversification as well as a more stable excess return. The implementation is effected through a proprietary scoring model, in which each risk factor consists of a wide range of inputs.
Eyb & Wallwitz – Intelligent investing