The Elemental Investment Process
|
|
Our goal is to deliver superior long term results for our clients. We have the freedom to invest wherever we find attractive opportunities and we do not adhere to any specific position size, sector, industry, or asset class constraints imposed by various benchmarks or indices.
|
Investment Philosophy
We believe that the primary risk facing investors is the potential for permanent loss of capital. We also believe that the most effective way to address this risk is to own a concentrated portfolio of high quality businesses purchased at reasonable prices. In our experience, there are a limited number of businesses that can consistently generate cash flows at high rates of return on capital. Often, we believe, these companies possess unique competitive advantages that enable them to achieve such high returns. Ultimately, our investment process is focused on discovering these rare enterprises, and our portfolios typically own a limited number of companies as a result. Equity Investment Process Elemental’s equity investment process is a disciplined bottom-up approach. We utilize fundamental analysis to identify companies that we believe are dominant organizations, appear to be undervalued, and offer significant opportunities for growth. The process begins with a universe of more than 3000 companies to which we apply a multi-factor model to narrow the list of candidates to a more manageable 300-500. Each company is then evaluated on several criteria including financial strength, operating history, company culture, and competitive positioning. Companies that qualify as niche or industry dominators are then evaluated for their intrinsic value. If a company’s share price is selling significantly below its intrinsic value then the portfolio manager may add shares to the portfolio. Fixed Income Investment Process Our fixed income investment process is driven by our macroeconomic outlook and overall views on interest rates and the broader credit environment. The approach combines top-down scenario planning and active management with individual client requirements to manage risk and provide income to portfolios. Individual security selection is determined by maturity, interest rates, credit quality, and industry. Generally, the portfolio manager will seek to diversify fixed income portfolios across industries and will keep issuer concentration to reasonable limits. |
