Munro identifies sustainable growth trends that are under-appreciated, not well understood and mispriced by the market, and in our view, the resulting winning and losing stocks.
Munro looks for six 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.
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.
Qualitative and quantitative tests combine to build a high conviction, index, region and sector unaware portfolio of investments. Munro's absolute return heritage means risk management and proprietary stop loss review framework are integral.
Global equities
Over 24,000 listed
global equities
Growing equites
Many profess to grow.
We identify structural growth
Secular growing equities
Growth
Faster earnings versus peers and a growing total addressable market.
EPS growth
Pricing power or economic leverage to be able to improve margins.
Earnings durability
Ability to sustain growth due to scale, position, intellectual property and/or location.
ESG
Management of environmental, social and governance risks and opportunities.
Control
Strong management ownership and incentives.
Consumer perception
Strong customer reviews and rapid adoption of its products and services.
Potential for
earning surprise
Has the market adequately considered
the structural forces at play
when forecasting company earnings?
Potential for multiple
rerating / derating
Has the market adequately considered
the quality of the company and its ability
to execute on the structural forces at play
when assigning an investment multiple?
Catalyst
What timeframe, volatility and catalysts
are required to meet the price target?
Best ideas
Portfolio concentration
Typically 30-50 high conviction positions
Portfolio concentration
Typically 20-40 high conviction positions
Position sizing
Average longs of 3% and average shorts of 1.5%
Position sizing
Average longs of 3%
Exposure management
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
Exposure management
Generally fully invested
Maximum 10% cash
Short philosophy
Shorts are typically represented by structural losers or misplaced securities and are subject to a more prudent risk-taking approach
Short philosophy
Shorting is not permitted in the long-only, relative returns strategy
Aggregate portfolio risk
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
Aggregate portfolio risk
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
Exposure
Maximum gross exposure limit of 200%
Maximum net exposure limit of 100%
Exposure
Maximum net and gross exposure limit of 100%
Maximum cash exposure of 10%
Single positions
Maximum long position of 10% of NAV at cost
Maximum short position of 5% of NAV at cost
Single positions
Maximum long position of 10% of NAV at cost
No short positions
Concentration
No sector or region concentration limits
In practice, Areas of Interest create differing sector exposures
Concentration
No sector or region concentration limits
In practice, Areas of Interest create differing sector exposures
Liquidity
80% of individual position sizes are limited to 30% of 10 days average daily volume (trailing 90 days)
Liquidity
75% of individual position sizes are limited to 30% of 20 days average daily volume
Stop losses
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
Stop losses
Individual stock stop loss formal review at 20% drawdown
Currency
Manage for base currency benefit, with a bias to hedge back to base currency
Default currency hedge of 50%
Currency
Unhedged