Equity Investment Philosophy
The cornerstone of Umthombo Wealth’s investment philosophy is rooted in long-term valuation driven investments that seeks to provide clients with superior risk-adjusted returns through market cycles.
We are Style Agnostic. Our philosophy allows for an unconstrained investment approach that is ideal for the relatively small South African investment universe. Our approach yields more suitable investment options to construct a prudent, risk-conscious portfolio that differentiates us from competitors.
The cornerstone of Umthombo Wealth’s investment philosophy is rooted in long-term valuation driven investments that provide superior returns for our clients over time. We seek to invest in businesses that possess robust balance sheets, strong cash flow generation, unrelenting governance approaches and a superior earnings profile. We believe companies who are able to demonstrate this on a consistent basis have the potential to deliver sustainable alpha uplift and long-term capital appreciation for our clients.
The cornerstone of Umthombo Wealth’s investment philosophy is rooted in long-term valuation driven investments that provide superior returns for our clients over time. We seek to invest in businesses that possess robust balance sheets, strong cash flow generation, unrelenting governance approaches and a superior earnings profile. We believe companies who are able to demonstrate this on a consistent basis have the potential to deliver sustainable alpha uplift and long-term capital appreciation for our clients.
We are Style Agnostic. Our philosophy allows for an unconstrained investment approach that is ideal for the relatively small South African investment universe. Our approach yields more suitable investment options to construct a prudent, risk-conscious portfolio that differentiates us from competitors. We therefore favour a multi-faceted style agnostic investment technique which allows us to consider every potential investment on its own merit, irrespective of market definition. Subsequently, we can accomplish a higher probability of consistent performance across different market cycles.
Investment Process
Since we consider every possible investment, we have a comprehensive process that aims to reduce the universe through both qualitative and quantitative techniques. Our process encompasses idea generation from each analyst’s share universe (top buys and sells), high level valuation ranking table, quantitative screening tool, relative graphs and price movements, bottom fishing (contrarian measure with quality overlay), stock and macro screens, and broker research.
Once an investment opportunity is identified, an analyst is tasked to do a high-level analysis to assess whether the stock warrants further scrutiny. High level analysis could be qualitative, quantitative or a combination depending on the requirements. High level valuations are done on analyst’s or consensus forecasts.
Once it is decided that the idea has merit, the analyst is tasked to produce detailed work and to build a fundamental investment case in accordance with our investment philosophy. The detailed analysis incorporates the creation of a qualitative investment case. The qualitative investment case will then be quantitatively modelled (financial statements, notes, and segmental analysis) and supported by detailed scenario and sensitivity analysis on forecast variables or valuation assumptions. The drivers and risks of each investment case will be clearly explained, with additional emphasis on ESG and earnings quality. The primary output is the distribution of expected risk and returns, as well as the sustainability of the investment case.
Our portfolio construction process is a function of product offering (aggressive, moderate, conservative and unconstrained) in which alpha transport and portfolio overlay techniques will be applied relative to specific benchmarks and within mandate specific parameters. This depends on the benchmark, mandate objectives and constraints. The process is scalable across the risk spectrum. We take into account the target tracking error as well the active share related to the mandate objectives.
We also apply common sense and qualitative analysis to reduce turnover and verify that the decisions are appropriate to arrive at the optimal portfolio. The team interrogates the optimal portfolio before finally generating orders into the market.
Risk management is of utmost importance and is done on a day to day basis. On a regular basis – at least monthly – we perform performance attribution analysis from both on risk and return perspective. Based on our continued risk management process and regular attribution assessment it will feedback into our investment process in order to potentially capitalise on any opportunities or to mitigate identified risks.
Since we consider every possible investment, we have a comprehensive process that aims to reduce the universe through both qualitative and quantitative techniques. Our process encompasses idea generation from each analyst’s share universe (top buys and sells), high level valuation ranking table, quantitative screening tool, relative graphs and price movements, bottom fishing (contrarian measure with quality overlay), stock and macro screens, and broker research.
Once an investment opportunity is identified, an analyst is tasked to do a high-level analysis to assess whether the stock warrants further scrutiny. High level analysis could be qualitative, quantitative or a combination depending on the requirements. High level valuations are done on analyst’s or consensus forecasts.
Once it is decided that the idea has merit, the analyst is tasked to produce detailed work and to build a fundamental investment case in accordance with our investment philosophy. The detailed analysis incorporates the creation of a qualitative investment case. The qualitative investment case will then be quantitatively modelled (financial statements, notes, and segmental analysis) and supported by detailed scenario and sensitivity analysis on forecast variables or valuation assumptions. The drivers and risks of each investment case will be clearly explained, with additional emphasis on ESG and earnings quality. The primary output is the distribution of expected risk and returns, as well as the sustainability of the investment case.
Our portfolio construction process is a function of product offering (aggressive, moderate, conservative and unconstrained) in which alpha transport and portfolio overlay techniques will be applied relative to specific benchmarks and within mandate specific parameters. This depends on the benchmark, mandate objectives and constraints. The process is scalable across the risk spectrum. We take into account the target tracking error as well the active share related to the mandate objectives.
We also apply common sense and qualitative analysis to reduce turnover and verify that the decisions are appropriate to arrive at the optimal portfolio. The team interrogates the optimal portfolio before finally generating orders into the market.
Risk management is of utmost importance and is done on a day to day basis. On a regular basis – at least monthly – we perform performance attribution analysis from both on risk and return perspective. Based on our continued risk management process and regular attribution assessment it will feedback into our investment process in order to potentially capitalise on any opportunities or to mitigate identified risks.