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Absa Asset Management seeks to provide clients with relevant investment performance that meets and even exceeds expectation within agreed and acceptable risk parameters. We are proactive and dynamic in our approach to the business of investments.
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Equity
Investment Philosophy and Objectives
In Absolute Equity portfolios (Best View), the primary objective is to limit the risk of losing money and to outperform the market benchmark (ALSI) over time.
In Relative Equity portfolio's (House View), the primary objective is to produce progressive and incremental outperformance of the agreed benchmark, within agreed risk parameters.
At the heart of our investment philosophy is the inter-relationship between business, management and price. Our concept of an ideal investment is the simultaneous existence of an excellent business, run by excellent management and a market price well below true business value. |
This investment philosophy guides our team of investment professionals in their quest to find undervalued securities. Our approach is bottom-up (at individual security level) and valuation focused. It is designed to answer the following questions:
- Is this a good business?
- How does management compare to the average business manager?
- What is the business worth? - Is the stock cheap relative to value of the business?
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The result is an approach, which has no long-term style bias and is able to cross the growth/value divide by investing in undervalued companies. The portfolio will include "growth" and "value" shares that are cheap in relation to their intrinsic value. In our view, such an approach is ideally suited to the small investment universe available in the South African market.
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Investment Process
We employ an intensive, in-house research process to identify companies that meet our investment criteria. Our process is designed to facilitate measurement and compliance at every level to recognise the contribution made by each analyst and portfolio manager. Furthermore, the process is robust, scaleable and repeatable, and independent of any one person.
Analysts and portfolio managers seek to identify undervalued companies and accordingly the investment process is less based on macro-economic factors, such as the performance of the economy or the direction of interest rates. Instead, such macro-economic factors are incorporated into the assessment of value of the individual security.
We define the investment universe as the top 100 stocks in terms of market capitalisation and approximately 40 companies with market capitalisation below the level of the top 100, which meet specified criteria.
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Errol Shear
Chief Investment Officer
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Our meticulous research process results in a price to fair value ranking and a firm view of all stocks in the investment universe.
The result is a collective team effort aimed at identifying the best value opportunities in the market. The price to fair value rankings can be used by each sector head or portfolio manager to construct a focused portfolio, built up stock-by-stock.
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Fixed Interest
The fixed interest team's primary objective is to determine a directional view of interest rates. From this view a suitable full discretionary fixed interest portfolio is constructed. The team uses a checklist detailing all the factors that influence the direction of interest rates. The checklist is organised into six broad categories with each category being assigned a weight when calculating the overall directional decision. These categories include economic fundamentals, monetary conditions, valuations, liquidity, technicals and international factors.
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Juan Becker -
Manager : Fixed Interest |
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The decision is then translated into a positive, neutral or negative score. In essence this score indicates our level of conviction that the view is correct. The score is then translated into a desired "modified duration".
The modified duration is then achieved by the selection of securities taking the following into consideration: analysis of yield curves, analysis of duration and terms to maturity, portfolio modelling and valuation, credit and risk analysis and sector and stock selection.
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Balanced funds (fixed interest & shares)
The "House view" portfolio is the core reference for all balanced fund portfolios. The House view is the sum of the parts with the key asset classes and sectors (fixed interest, industrials, financials, resources …) constituting the building blocks of the balanced fund. House view parameters have been defined at the asset class and individual security levels.
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Best view
The "best view" portfolio is constructed in a similar fashion to the house view. The focus of the best view is to generate maximum returns over a three-year period. This necessarily brings with it more volatility around the benchmark than does the house view.
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