Investment Philosophy
Identifying value before the market.
Since the firm’s inception in 1995, we have selectively introduced new products to areas where there are opportunities to exploit not only our strengths, but also market inefficiencies. These niches exhibit pricing inefficiency due to a combination of factors such as a lack of sell-side analyst coverage and investor complacency that distort prices. In turn, the distortion creates opportunities to make active management count for investors through the use of specialist portfolio managers. Our portfolio managers have significant personal capital invested in the products they manage and in Hesperian Capital Management Ltd.
Our independent in-house research team utilizes a disciplined blend of fundamental and quantitative research to build portfolios with superior attributes focused on attractive valuations, high returns on equity, high cash flow to debt, and strong earnings momentum. This proven and repeatable investment methodology allows us to identify value before the market.
Our guiding principles
1. Inefficient markets offer an opportunity for specialists. "The knowledge advantage is real given that inefficient markets rarely exhibit the consistent level of rational sentiment and the sufficient business understanding necessary to accurately price securities."2. Manage risk by not overpaying for growth. “The quantitative overlay to our fundamental analysis moderates the emotional aspect of investing by ensuring that securities exhibit the attributes that have been proven to result in success. The overlay also places current metrics in the context of historical norms for the market, the sector, and the security itself.”
3. Apply a proven and repeatable methodology rather than try to predict the future. “The key is not to be right about whether a number will increase or decrease over a given time period, but to profit from market psychology and the fact that the consensus forecast is often already built into security prices.”
4. Too many holdings dilutes performance. “To deliver meaningful long-term performance that differs from the index, our funds generally hold 30 to 40 securities with the ten largest positions composing 40% to 50% of the portfolio.”
5. Strive for disciplined long-term consistency. “To find a parallel in baseball terms, we value hitting more than our fair share of singles and doubles each and every season rather than an unpredictable pattern of home runs and strike outs.”
6. Size each fund to fit its market niche. “It is easier to earn a great long-term return on ten million dollars than it is on ten billion as a smaller fund is more nimble and more likely to bring efficiency to the inefficient.”
7. The most important return for investors is after tax. “To maximize the after tax return for investors, many of our funds live inside a corporate class structure and we only trade when there is clear value in doing so.”
8. The quality of a company is only half the investment equation. “Although we intrinsically prefer great companies to good ones, we would rather invest in a good company at a great price than a great company at a price beyond its value. No company is a great investment at any price.”
9. Maintain a long-term view on short-term gyrations. “We view short-term volatility as a contrarian opportunity to take advantage of irrational markets by selectively adding to our favourite names.”
10. Devote the resources to specialize in inefficient markets. “Our deep, independent in-house research team and support functions are structured to allow us to know a lot about a few niches, rather than a little about everything.”