"...believes in allocating capital into a small number of high quality investment opportunities."
The Fund's investment objective is to achieve superior absolute returns in all market environments with an emphasis on capital preservation.
Investment Style of the Fund
LHC Capital is a high conviction absolute return investment manager, and believes in allocating capital into a small number of high quality investment opportunities.
Through its investment process, LHC Capital seeks to identify companies where it believes there is a material difference between current stock market valuations and its assessment of intrinsic value. LHC Capital allocates the Fund’s capital into investments where this margin of safety is at its greatest.
LHC Capital seeks to own companies it considers undervalued relative to its assessment of intrinsic value. LHC Capital will “short sell” the shares of companies it believes to be at a significant premium to their intrinsic value.
LHC Capital will also seek to identify or encourage events that may act as a catalyst for valuations to converge towards their intrinsic value. The emergence of catalyst events will also have an impact on how LHC Capital allocates the Fund’s capital between competing investment opportunities.
Investment Process of the Fund
LHC Capital will apply its investment process in determining how the Fund’s capital will be allocated. The investment process utilises a “four step framework” for analysing investment opportunities. Using a consistent approach creates a platform of comparability between investments. The starting point for almost all investments the Fund will evaluate will be bottom-up stock selection. This stock idea will then be subjected to the following investment process:
- Fundamental Valuation
The investment team conducts rigorous analysis on a potential investment opportunity. This may typically include (but is not limited to) meeting management, competitors, customers, suppliers, industry experts and other interested stakeholders. The investment team will then form a view on the sustainable level of annual cash generation of the company and its longer term intrinsic value.
The investment team will identify key macroeconomic factors that may impact the intrinsic value of the company, analyse how sensitive valuation is to a change in these factors, and form a view on whether the risk to any such change in these factors is appropriately priced in.
The investment team view catalyst events as important facilitators of moving the price of a company towards its intrinsic value within a shorter time frame, and will seek to identify if a company has any such upcoming events which can serve as valuation catalysts.
The final part of the investment process is the investment team considering if we have an “edge” in assessing the intrinsic value of a company when compared to other market participants. This would typically manifest itself in having a stronger view on one of the key drivers contributing to the cash generation capability of a business than the market.