Our Managed Fund products provide access to our global equity investment strategy, including unlisted Australian-registered managed funds.
JBS Investment Partners Fund
the fund offers investors exposure to undervalued businesses in both developed and emerging markets.
To provide capital growth over the long-term by investing in undervalued companies from around the world.
Exposure to an actively managed, diversified equity portfolio that seeks to minimise losses during market downturns using risk management techniques
Access to a manager with a proven investment philosophy and method for selecting undervalued stocks and a team of experienced investment professionals
Actively managed currency exposures providing substantial diversification from the Australian dollar
Annual distribution of the fund’s net income, including net realised capital gains
International Advantage Fund
Just as optimism and pessimism ebb and flow in stock markets, similar sentiments affect the share prices of individual companies, causing the price of shares to deviate significantly from their intrinsic worth at times. The temporary divergence between the inherent value of a business and the market’s perception and expectations of it, as reflected in the company’s share price, is the opportunity that we seek to exploit.
What creates these opportunities is investors’ inability to anticipate and fully comprehend change, compounded by such emotional drivers as fear, fashion and greed. While share prices frequently fluctuate in reaction to inconsequential news headlines and overreact to recent events of a salient, though transitory, nature, be they positive or negative, markets rarely respond proportionately to real changes in the intrinsic value of the business. Moreover, the plethora of market ‘noise’, together with the availability bias innate in human beings, causes investors to extrapolate – inferring simplistically that the trend line observed today will continue into tomorrow.
These attributes lead to a general tendency by market participants to chase the next big growth story while neglecting businesses that are facing temporary set-backs or undergoing periods of change and transition. It is at this point of change and consequential doubt that the market is most vulnerable to mispricing a company’s true prospects.
The key to Platinum’s investment approach lies in distinguishing companies with sound businesses that are undergoing creative destruction, from those that are facing fundamental challenges. This requires independent thought and practical business acumen.
Adopting a contrarian approach to investing means that we can periodically face trying times, because there can be a lag – months or years – before the market recognises the intrinsic value of out-of-favour companies. Strong discipline is needed to adhere to the investment thesis and remain unperturbed by market volatility in both good times and bad. We minimise “case drift” by ensuring that each investment is supported by a written report that lays out the investment case in detail. Note, however, it is equally important to recognise when an investment case is not playing out due to altered fundamentals in the business. In the event of a company failing to meet our pre-determined performance milestones, the shares are likely to be sold.
Our search for intrinsic value is simple in concept. Applying the concept, however, requires a methodical and disciplined process and a certain mentality. We have a methodology at work, and its robustness is proven by the long-term track record of our portfolios.
Our fundamentals-driven approach means that we build each portfolio from the bottom up through individual stock selection. As a result, the disposition of our portfolios can – and often does – differ significantly from thatof the benchmark index.
We also do not follow any pre-determined asset allocation model, though an understanding of the broader socio-political and macroeconomic trends play an important part in our stock picking process.
We use various devices to make sense of the huge universe of stocks available, including proprietary models that allow for the selection of companies based on specific parameters (or screens) across a databank of several thousand companies. The screens may be based on quantitative criteria, but may also be built on a qualitative hypothesis centring on, for example, certain industry trends. This process allows us to delve deeply into cross-comparative studies of companies around the world, thereby drawing up short-lists for further investigation.
Generation of themes and ideas is eclectic in nature. Apart from applying quant tools to look for signals of neglect, there is a constant input from observations of the changing socio-economic and political landscape as well as secular trends such as the technological disruptions of traditional industries and new consumer trends emerging amongst the growing middle class of some developing economies.
Great store is placed on the cross-pollination of ideas and the importance of applying a global perspective to each company’s operations. Our investment team is structured with the specific aim of fostering an open and collaborative environment and to facilitate the free exchange of information and ideas between analysts with different geographic and industry specialisations.
Once a company has been identified as a potential investment opportunity, it is then investigated by an analyst in great detail and depth, harnessing all the resources available to us, including material from the company itself as well as its competitors, broker reports, industry studies and consultations with experts. Analysts also periodically make on-site visits to portfolio companies (and potential ones) as well as their competitors and suppliers.
It goes without saying that the quantitative and qualitative analyses of a company encompass considerations such as:
what gives the company’s business a competitive edge and whether its success is sustainable;
the quality of the company’s management team, as measured by its past record, duly adjusted for the circumstances at the time, as well as statistical comparison with its peers;
the company’s ownership structure;
whether the company is financially sound, such as the extent of its reliance on debt financing and its ability to service its debt;
how much free cash flow the company is generating, how much and how likely its free cash flow will grow in the future, and how much of that cash flow will reach the hands of shareholders;
whether company’s intrinsic value (as determined by factors such as those mentioned above) is being over- or under-estimated by the market, as reflected in such metrics as the price-to-earnings ratio and price-to-book ratio, etc.
In reality, this information is largely available to all serious market participants, but it is the interpretive skill and mentality that make the difference.
To properly evaluate the prospects of a company and to what extent it is being mispriced by the market, we go above and beyond the financial statements and earnings forecasts and truly immerse ourselves in its business to find out how it works, how it has evolved and developed into what it is, and what really makes it tick.
The key lies not in the quant tools or valuation models, but partly in the mentality of a long-term investor, in contrast to that of a short-term speculator. As shares represent part ownership interests in a company, we think about each opportunity through the lens of one who is considering becoming a joint-owner of the business and demand from ourselves an in-depth understanding of – and conviction in – the business before committing any capital to it.
The research findings and analysis are distilled into a detailed report. This is then subjected to the critical appraisal by other team members who meet to rigorously debate the merits of the case. The purpose of these meetings, which can last for hours, is to expose areas of concern and potential flaws in each investment thesis, rather than to achieve a consensus. The final decision lies not with a committee, but solely between the analyst who is the promoter of the idea and individual portfolio managers.
The research report would highlight specifically the achievements expected from the company being proposed. These vary considerably, depending on the nature of the company involved, but, among other things, would include sales and earnings targets. Failure by the company to meet these targets would raise concern and, notwithstanding confirmatory price action, could result in the shares being sold. It is Platinum’s experience that when such targets are met or exceeded, the company’s share price tends to overshoot expectations.
Portfolio construction & balancing
Each of our portfolios is assembled from a series of individual stock selections, with the weightings determined by the relevant portfolio managers based on their conviction in each investment case (subject to the limits prescribed in the mandate). A well-recognised index such as the MSCI All Country World Index is used as a reference to evaluate the performance of a portfolio in relation to the total market opportunity in which it invests, but the stocks that make up the index or the weightings of those stocks within the index have no bearing on the composition of the portfolio.
We view portfolio construction as an organic layering process, not a formulaic procedure. At any time, there will be exciting new ideas, others that have made an initial contribution and stocks that are starting to tire as the market catches up with the company’s fair value. In addition to closely monitoring the unfolding of each investment case, care is taken to understand the interplay between stocks and themes within a portfolio, ensuring that the portfolio remains well-balanced as its thematic focus shifts from one area to another.
When there is a shortage of compelling stock ideas, the cash balance will tend to rise (and vice versa). As such, after periods of a very strong run-up across a broad range of stocks held, a portfolio may hold significant cash positions. Likewise, when our research reveals companies whose prospects are improbably refulgent and extravagantly overvalued, short-selling (where permitted under the mandate) may be undertaken to manage portfolio risk as well as to increase returns.
Environmental, Social and Governance (ESG) Considerations in Investing
Platinum is a fundamental equity investor and believes that private enterprise plays a central role in wealth creation and social advancement. It is also our belief that value creation for shareholders ought to be aligned with value creation for society at large. Platinum invests with a long-term outlook (typically five years or more) and, as part-owners of the enterprises in which we invest, it is paramount to us that they maintain their social licence to operate. As such, we view social and environmental sustainability as well as sound corporate governance as being vital to a company’s long-term viability, growth and profitability.
Platinum’s approach is focused on identifying companies whose intrinsic value is under-appreciated by the market due to temporary drawbacks or irrational market sentiments. Material ESG trends and factors can directly and indirectly impact on a company’s financial performance and prospects, and when such externalities are not fully reflected in the company’s share price, it may create opportunities for the discerning, but may also pose investment risks for the unwary.
To assess a company’s true worth – the core of our mission, a nuanced consideration of the company’s operations and operating environment is essential, and the evaluation of material ESG issues and risks, like traditional financial and operational factors, is an integral part of this exercise. We believe, based on both Platinum’s own experience and studies by third party researchers, that incorporating ESG considerations into the investment process by employing a robust framework can lead to more informed and holistic investment decision-making and, ultimately, better investment outcomes for our investors.