Our main equity investment process, which we call RAID (Ranked Active Investment Decisions) is as follows:
- We extract a broad range of fundamental and market indicators stocks in an index from various databases/sources, such as Bloomberg and Reuters.
- Initially, each stock earns a score if it achieves a threshold value on a particular factor. These factors are grouped into Value, Growth, Sentiment or Quality baskets. For Value these factors include twelve month forward PE ratios and dividend yield, among others. Growth indicators will include EPS and sales growth over various periods. Consensus earnings estimates, ratings and institutional buying feature in our Sentiment factors. Quality indicators include dividend and interest cover and gearing.
- The Value, Growth, Sentiment and Quality scores are then normalised and ranked. The entire index is listed in order to aid detection of patterns across and within sectors. This is effectively a ranking, rather than a screening system and helps prevent losing stocks simply because they do not score well on a particular criterion.
- The scores are ranked so that we can search, for example, for exceptionally high or low Value or Growth scores (or both), or for stocks whose combined score is high or who have, for example, low Value but high Sentiment scores.
- Short-listed stocks are then put through a robust valuation template to enable comparison with market estimates, stress testing and to assist discussions with company managements.
