The portfolio will be made up from between 25 and 40 of the companies on our universe list of c.200 companies. At entry all investments made will be expected to generate a 15% p.a. total return hurdles. Thereafter the balance of the portfolio is determined by the fund manager from the opportunities available taking into account not only the expected return but also the company specific and geographic risk as well as the degree to which the investment diversifies the portfolio.
The cash position of the fund can vary between 0% and 25%. The level of cash within the fund is solely a function of the opportunities available to the portfolio manager. If, as a result of high valuations in equity markets, there are no suitable investments available which are expected to generate a 15% annual total return, then the manager will allow cash to rise as the fund makes sales or experiences in-flows. Cash is usually held in the base currency of the fund (GBP) unless the managers have a strong medium-term view that another currency offers substantial appreciation potential in which case, a proportion of the cash will be invested in that currency.
With regards to the currency exposure, as a result of holding equities outside the base currency (GBP) the fund will accept the inherent currency exposure unless the managers have a strong medium-term view that the currency in which the investment is held will depreciate against the base currency. In such circumstances, the position will be hedged back into the base currency.
Sell disciplines
Holdings within a portfolio are constantly monitored to assess whether our original investment thesis holds. If there has been a change to the underlying economics or competitive advantages of an industry or company we will assess the impact and act accordingly. Equally, if a holding within a portfolio becomes priced above our estimate of intrinsic value we will sell our stake. We monitor yield closely but do not have dogmatic sell (or buy) criteria at certain yield levels.