The portfolio comprises a single pool of investments, selected for their 3 to 5 year total return potential. Organic dividend yield is not a consideration in portfolio decisions and the focus is on maximisation of total shareholder return. Stocks are only considered for inclusion in the portfolio following a comprehensive multi-stage due diligence process. The investment process is based on bottom-up fundamental analysis. Whilst the hypothetical investable universe is very broad, the requirements around levels of daily liquidity and financial disclosure mean that the realistic investable universe is typically approximately 800 stocks at any given time. Companies in the portfolio are selected on the basis of their merits rather than their weighting in any particular benchmark or index.
The investment process can be summarised as consisting of four broad stages:
Macro considerations (thematic assessment)
These include analysis of sub-sectors within the healthcare industry, including their relative valuations, growth prospects and regulatory outlook. Also, the risks and opportunities associated with the political environment and sector M&A activity. The Portfolio Manager is happy to discount ownership of certain healthcare sub-sectors for multi-year periods based on this analysis.
Bottom-up analysis (idea generation)
This includes the use of proprietary screening tools to narrow the investable universe to the most promising candidates. Management quality and accessibility are key criteria.
Selection of high conviction core portfolio (stock weighting considerations)
This is driven by the Portfolio Manager’s fundamental analysis of the narrowed investable universe, including the relative attractiveness of sub-sectors, expected returns, downside risk and trading liquidity in potential investee company securities.
Risk management framework (independent oversight)
This is provided by a combination of the Portfolio Manager’s own risk management tools and the oversight provided by a highly experienced, independent Board of non-executive directors. An integral part of this framework is a rigorous selling discipline in relation to portfolio holdings, with position prices and valuations continuously monitored against the Portfolio Manager’s views on valuations and expected returns.