The Investment Approach

Munro Partners is a global investment manager with a core focus on growth equities. Munro’s investment philosophy focuses on the simple task of identifying and investing in companies that have the potential to grow at a faster rate and on a more sustainable basis than the peer group.

Absolute Returns

Munro runs the long/short absolute return mandate: the Munro Global Growth Fund.

Index-unaware, aiming for meaningful absolute returns through the investment cycle, whilst maintaining a capital preservation mindset. Munro’s flexible investment mandate allows it to dynamically manage its market exposure and its currency exposure to protect clients capital and to enhance the long term returns of our investments.

Growth Investors

We are growth investors. Of the 20,000 listed corporates in the world, many profess to be growing, but only a small portion actually grow independently of the broader economic cycle. This is where the Munro investment process focuses. Our research process has been designed and honed over 13 years to successfully sift through the world’s listed corporates to find sustainable growth trends that are under-appreciated and mis-priced by the market, and the resulting winning and losing stocks.

Relative Returns

Munro runs the long-only relative return mandate: the Munro Concentrated Global Growth Fund.

It focuses on building a long-only portfolio of 20 to 40 growth equities that will benefit from structural changes through a disciplined investment process that provides access to a fully invested portfolio outside of Australia.

Stock Picker

The investment process generates a high hit rate of performing ideas and allows them to be appropriately sized and monetised over long time periods. Concentration on stock and sector is important, whilst risk management and rigorously eliminating underperforming positions is crucial in generating strong returns and outperformance over multiple market cycles.

Disciplined Process

Munro runs a comprehensive and disciplined investment process that seeks earnings upside/downside visibility, valuation multiple upside/downside and catalyst visibility. In addition, the portfolio is managed within clear risk parameters and a disciplined drawdown management framework.

Active Research

We believe strongly that investing is a process of covering the globe and continuously meeting with management teams. With an ‘on the ground presence’, our founding partners built a strong 13 year performance track record on the back of averaging 400 company meetings a year, building a focused 1,000 stock universe, and owning a network of over 3,000 key contacts.


The Investment Process

Idea Generation

Munro is focused on growth

Munro identifies sustainable growth trends that are under-appreciated, not well understood and mis-priced by the market, and the resulting winning and losing stocks.

As experts in the space, Munro leverages its global access and prides itself in identifying key “Areas of Interest” (AoIs) and 2nd and 3rd derivative trends often over looked by markets. Our proprietary research process then quickly identifies key winners / losers, quantifies upside / downside and time to price target.

The philosophy is based on three overriding principals:

1.  Earnings growth drives stock prices 

Companies that consistently earn more than the year before are generally rewarded with higher stock prices over time.

2. Sustained earnings growth is worth more than cyclical earnings growth

Consistent growth, independent of cyclical factors and above the peer group, is generally valued at higher multiples than otherwise.

3. The market will often misprice growth and its sustainability

Consensus earnings estimates often underestimate growth, while pegging to market multiples will often underestimate the sustainability and cash generation capacity of that growth, allowing opportunities to invest in stocks well below their intrinsic value.

Idea generation process

Ideas are generated from a combination of top-down thematic and bottom-up views.

The team identifies medium-to-long-term structural themes and resulting investment trends, and distinguishes between trends that are well understood and priced-in by the market, and those that are under-appreciated and overlooked: Areas of Interest (AoI).

The research process is a vital ingredient here. Constant interaction with corporate management, independent consultants, industry networks, sell-side research and the private equity community all contribute to identifying new AoI’s and new investment opportunities.

Munro maintains a generalist research approach across all sectors and markets, with the flexibility to focus resources on areas of greatest opportunity. Analysts act as stock and AoI ‘champions’ when contributing to portfolio construction.

The team has amassed a deep internal stock knowledge database of over 960 stocks, and actively mines this universe for fundamentally driven investment opportunities.

Secular growing equities
Idea Evaluation

Qualitative factors

Qualitative tests: Munro looks for five key company characteristics to gauge whether a listed company is likely to benefit or lose from a particular growth trend and whether that will be sustained over an extended period of time.

GROWTH Exhibit faster earnings, EBITDA or revenue growth versus peers and growing Total Addressable Market (TAM).
ECONOMIC LEVERAGE Exhibit pricing power or economic leverage to improve margins.
SUSTAINABILITY Exhibit ability to sustain growth due to scale, position, intellectual property and / or locational advantages.
CONTROL Exhibit strong management ownership and incentives.
CUSTOMER PERCEPTION Exhibit strong customer reviews and rapid adoption.

Quantitative factors

Quantitative tests: Munro uses three valuation based tests to quantify earnings upside/downside, multiple upside / downside and time based catalysts. Ideas graduate from the universe to the portfolio based on the relative upside generated from these tests.

EARNINGS UPSIDE / DOWNSIDE Build in-house valuation model and bull and bear case scenarios.
MULTIPLE UPSIDE / DOWNSIDE Corporate characteristics score to determine appropriate earnings multiple and price target.
CATALYSTS Map catalyst calendar, and timing and magnitude of re-ratings.
Portfolio Construction

Qualitative and quantitative tests combine to build a high conviction, index, region and sector unaware portfolio of investments. Capital preservation driven by a top down view of market risks and hedging possibilities.

  • Driven by bottom-up idea generation
  • Typical gross exposure between 50-150% and typical net exposure between 50-100%
  • Exchange traded option positions frequently used to protect downside
  • Typically 30-50 high conviction positions
  • Average longs of 3% and average shorts of 1.5%
  • Shorts are typically represented by secular losers or misplaced securities and are subject to a more prudent risk-taking approach
  • AlphaDesk Portfolio Management System used to provide real time reporting and pre/post trade compliance
  • The investment team actively measures portfolio correlations, sector risks, style exposure and aggregate valuation metrics which is formally reviewed weekly
Risk Management

Risk management and capital preservation are integral parts of Munro’s investment philosophy and portfolio management.

  • Maximum gross exposure limit of 200%
  • Maximum net exposure limit of 100%
  • Maximum long position of 10% of NAV at cost
  • Maximum short position of 5% of NAV at cost
  • No sector or market concentration limits. In practice, Areas of Interest create differing sector exposures
  • 80% of individual position sizes are limited to 30% of 10 days average daily volume (trailing 90 days)
  • Individual stock stop loss formal review at 20% drawdown, 10% for shorts
  • Gross exposure formal review at 3% drawdown. Net exposure formal review at 5% drawdown
  • Manage for base currency benefit, with a bias to hedge back to base currency