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Investment Process

Investment Philosophy

We believe that the macro environment and individual corporate fundamentals are both important in delivering outperformance. As such, we combine both to create a portfolio of companies with the aim to deliver superior risk adjusted returns for investors. We seek to own companies with macro supported earnings growth that are attractively priced.

From a macro perspective, we believe it is essential to have both the right thematic tailwinds behind an investment in addition to supportive fundamentals. This is especially true in Australia where commodity prices, interest rates, property prices and currencies are key drivers of earnings for ASX200 listed companies. As such, we focus on understanding these macro-economic factors and themes to ensure our portfolio benefits.

From a fundamental perspective, we target high quality companies that have resilient earnings, strong free cash flow generation, a disciplined approach to capital allocation and a proven focus on return on capital. These companies should be able to demonstrate a track record and/or clear runway for growth – which can be organic or acquisitive growth opportunities. Importantly, we target high quality growth companies at attractive prices. Strong corporate governance, responsible practices, and management alignment with long-term outcomes must also be in place, as we believe this protects against capital loss.

Investment Process

Macro positioning and thematics

  • Focuses on key economic variables which impact ASX200 listed companies and the overall Australian market.
  • Identify key global and domestic themes that are likely to have a tangible impact on ASX200 listed companies.


Quantitative Analysis

  • Quant screening is used to narrow our focus to companies with attractive attributes.
  • Focus is given to the earnings quality, capital efficiency and corporate governance.


Fundamental Analysis

  • Fundamental analysis is undertaken to establish earnings expectations, risks and valuation metrics.
  • Management’s alignment, earnings quality and a firm’s competitive positioning are also considered.


Portfolio Construction

  • The portfolio is built according to macro thematic groupings, which are sized according to the available opportunity set.
  • Individual position sizing is balanced across most positions with consideration for potential capital return and volatility.


Risk Management

  • Position and sector exposures are limited to ensure diversification and broad exposure to the macro thematic drivers.
  • Strict principles are followed for reducing positions which adversely impact the performance of the portfolio.

 

For a more detailed understanding of our investment strategy and process, please contact us at info@clfunds.com.au or +61 2 9357 0788