Strategies

Strategies

Strategies

The strategies we employ are neither invented by us, nor are they taken off the shelf. They are the strategies dictated by the clients’ objectives and risk tolerance. We are only here to do the rest, that is, match these objectives with reality.

This is true for both pre-designed pooled vehicles when we picture the client and customized portfolios when the client puts finishing strokes to the picture. Depending specific objectives and other parameters, any portfolio from capital preservation and income to aggressive capital growth and speculative can be designed and managed by us.

In the equities-dominated portfolios that we manage, the objective is typically to provide return on capital in excess of Ukraine equities over a three-to-five year period.

The portfolios may be fully invested in equities or blended with some fixed income securities, which we may use as a stabilizing component of a balanced portfolio.

Currently, given a limited pool of traded investable securities in Ukraine, the portfolios may be diversified among the selection of 20 to 30 stocks and 5 to 10 corporate fixed income issues.

Depending on the specific strategy and a portfolio’s risk tolerance and/or regulatory requirements for a specific pooled investment vehicle, we can be long in one single position up to 5% to 20% of total portfolio assets. Currently, no leverage, short-selling or derivatives are employed.

Generally, we prefer value and take positions in value stocks where there is a catalyst that can revalue their price. This requires extensive fundamental research of companies that are undervalued by various measures in comparison to peers in Central and Eastern Europe and the rest Ukrainian stock market universe and can be purchased at very attractive prices. The ratios analyzed include price to book value, price to dividend, price to cash flow, price to sales and price to earnings, etc. The catalyst for the price change can be a production or financial restructuring, major change in or management, entering new markets or introducing new products.

We seek to take a position in a business when it is selling at a significant discount from what we have assessed as its true value and strive to sell when those values in our judgment peak. Normally, we prefer a “buy-and-hold” strategy until our objectives are met or there are signs of an asset loosing characteristics for which it was bought in the first place.  

A combination of top-down, industry-focused approach and bottom-up stock-picking is utilized. We seek companies we believe have a competitive edge whether it is in management, production processes or distribution channels, and select them for their growth potential and their value within their industrial sector.

We consider the following traits as warnings flags for potential investments: the existence or strong possibility of a major lawsuit or asset stripping, limited public trading history, an isolated management that may not be acting in the shareholders interest, and lack of favor with institutional shareholders.

At the same time, we do not wait for a cheery market consensus, believing that some uncertainty may be good to the buyer of long-term values. Besides, from our international clients’ perspective, Ukraine is still a “frontier” market, where portfolio investors do not normally wait to see all the good evidence and absolute confidence in the inevitability of success.

The market we specialized in is inefficient. In such market active management may produce better results, so stock selection and asset allocation are key to the investment process.

Process

Our investment management process is highly structured and disciplined.

The research and investment staff spend a lot of time visiting portfolio companies to make sure they are meeting our expectations and prospective companies analyzing them for their suitability for different portfolios. The goal of such time-consuming effort is fine-tuning fundamental research and first-hand impression of the management. Besides our research analysts have a broad network of industry analysts and specialists to consult with.

The whole investment team then evaluates investment alternatives and appraises investment decisions during the weekly investment committee meetings. By employing team approach we are able to leverage on the collective expertise and individual insights of our experienced team members.

From time to time, there is a need to rebalance the portfolio changing weightings, increasing or decreasing fixed income and cash instruments, as appropriate. Money flows, industry developments and specific equity and fixed income instruments prices are monitored daily.

We generally do not change the asset mix unless we spot new unfavorable developments within an industry or in connection with a specific company or unless the client's financial profile changes.

Although our asset allocation decisions are not influenced by short-term market expectations, the specifics of the Ukrainian market, e.g. in the field of minority shareholder protection or management loyalty to the shareholders' best interests, may prompt us to decide in favor of selling a position.

Close monitoring of our clients' investments along with continual scanning of the business environment is an important service we provide as part of our effort to maximize client returns.