To be successful, a team of financial managers must maintain a rigorous process in selecting investments. Here are the principal selection criteria employed:

Leading companies

Investing is, above all, participating as a shareholder in a company's future. Most of the future profits depend on the company’s management vision and on its capacity to adapt. This management vision must be coupled with an operational aspect of management, which we verify both in terms of growth (turnover, profits, investments, market share…) as well as profitability (profit margins, return on equity…).

Growth sectors

All sectors are subject to change and thus to cycles. Timely detection of the catalysts of these changes is important: innovation in products or in habits of consummation, economies of scale leading to the consolidation of a sector through mergers or acquisitions, the presence of high barriers to entry… Conversely, it is as important and timely to be wary of sectors maturing or becoming too competitive.

Inexpensive valuation

A recognized company in a growth sector is generally expensive… we must keep in mind that investing in stocks, is buying a future stream of profits and dividends that are basically forecast by taking into account interest rates and risk premiums. In general, outperformance is achieved when we buy this estimated stream cheaply and then sell when it becomes expensive. To detect the beginnings and endings of sectoral cycles before others do requires strong anticipatory abilities.

Fundamental momentum

Earnings growth and changes in growth rates are key figures in calculating the actual value of future dividend flows. The value of a stock with an estimated earnings per share growth rate of 10% per year, should double when the estimated growth rate increases to 15% per year for a certain period.
It is thus very important to correctly predict changes in corporate earnings growth.

Technical momentum

A stock chart indicates a price trend. In absolute terms, it reflects what investors expect for any stock over a period of time. This trend is also interesting in relative terms (in relation to competing companies or indices) because it gives an idea of how the market perceives the company, independently of the short-term market direction. Finally, a stock chart can alert the manager when there is a glaring discrepancy with the direction of the fundamentals published by the company.

Investing means taking a gamble on the future.

In addition to errors of judgement, numerous uncontrollable events of a political (political crisis, war…) economic, financial (banking crisis, change in monetary policy…) or technological nature (discovery leading to profound changes…) or of an order specific to each company (strategic error, competitive changes…) can transform a potentially attractive investment into a true nightmare.

The methods generally used to assess the risk of a portfolio are based essentially on the analysis of the volatility of the securities relative to the indices. By trying to minimize deviations from the indices, we inevitably get the performance of the latter, diminished by management costs without regard to the absolute performance of the funds managed.

We resolutely take issue with this approach, given that the true risk of the portfolio is to lose money in the medium term, and believe that it is better to incur higher volatility if this is the condition required to obtain a positive performance over the medium term.

The concept of emerging markets well illustrates this over the last ten years: many managers only allocated them a very small proportion of their portfolios because they were more volatile, thus depriving themselves of a major contribution to the performance of the funds managed.

The principal way to efficiently reduce risk is geographic and sectoral diversification, which we selectively practice, because dispersion over too many securities penalizes performance. The following limits set by the managers are objectives, which can be exceeded occasionally, depending on market developments.

Portfolio concentration

• No investment may represent more than 10% of the total value of a sub-fund of a SICAV.
• Investments greater than 5% may not total more than 40% of the total value of a sub-fund of a SICAV.
• Our portfolios are generally highly concentrated in order to profit from our best ideas. The average number of investments is around 30.

Sectoral diversification

Among the 10 major sectors represented in the index of the world stock exchange (MSCI), none can represent more than 35% of the total of a sub-fund. A balanced distribution between the different sectors of the MSCI is sought.

Geographical diversification

Three major zones of investment are considered: America, Europe-Africa, Asia-Pacific. With the exception of the Pacific sub-funds (Convertible and Equity), no zone can represent more than 50% of a sub-fund of a SICAV.

Hedging of currency risk

We do not feel that we have the expertise to manage the currency risk of a global bond portfolio. Our value added rests in managing the equity risk underlying the convertibles. For all the sub-funds of the SICAV Convertible and the class A shares (EUR), for the sake of transparency and to simplify our management process, we hedge the currencies other than those of the reference class currency, provided that an efficient exchange market in these currencies exists.