Page 18 - DIY Investor Magazine | Issue 32

A FRAMEWORK FOR LONG-TERM INVESTING
The economic, social and geopolitical effects of Covid-19 are expected to be long-lasting. These changes pose challenges for investors, but also create a wealth of opportunities as companies adapt to a post-pandemic world.
In this new environment for value creation, the ability of JGGI to focus on long-term capital growth, while also paying an attractive quarterly dividend, stands it apart from the crowd.
LONG-TERM VALUE CREATION
JGGI is founded on the belief that for a company to prosper, it not only needs to create shareholder value, but also to sustain that value for the long term. This maxim holds true today just as it did pre-Covid. The only difference is that companies now have a new set of priorities to address.
JGGI is fortunate to be able to leverage the full resources of J.P. Morgan Asset Management’s global equity investment network in search of investment opportunities. Our expert investment analysts maintain a local presence to the companies they cover and have a strong understanding of regional dynamics, helping them conduct in-depth research into the stocks they cover.
Our research focuses on identifying long-term winners based on three criteria: economics; duration; and governance.
The first classification we use in economics – can a business generate a value for shareholders? To assess this we look at fundamental factors such as cash flow generation as well as balance sheet and funding.
Companies need to be able to cover their cost of capital in order to be successful in the long run.
The second characteristic is duration and whether companies can sustain long-term value creation. Within duration, there are a number of factors at play – such as environmental and social ones, as well as industry structure and growth, competitive advantage and resilience. Combined, these factors now dictate whether organisations can deliver sustainable growth for their investors even during times of volatility.
‘IDENTIFYING LONG-TERM WINNERS BASED ON THREE CRITERIA: ECONOMICS; DURATION; AND GOVERNANCE’
The final characteristic that we look for is good governance. The former shareholder-centric model of governance that guided boards and business leaders for the past several decades appears to be giving way to a richer model that puts the health and resilience of the company, shareholder focus and value, prudent capital allocation and transparency at its centre.
While governance is an explicit strategic classification in
our process, assessing all ESG (environmental, social and corporate governance) factors is also integral to our research. These considerations are imbedded into our approach, with our analysts assessing both fundamental and sustainable aspects of the companies they research. Furthermore, we believe in actively engaging with companies on ESG issues and have a global investment stewardship which has over 20 years’ experience.
A BOTTOM UP, BEST IDEAS PORTFOLIO
This framework has been essential in helping us navigate
the post-pandemic world where there are many high quality companies with attractive long-term metrics, whose short-term outlook is clouded by the lingering effects of the pandemic.
For example, we opened a position in Airbus, the French aircraft manufacturer, which had suffered a dramatic share price hit during the onset of the pandemic and continues to face uncertainty.
However, we believe that demand for new aircraft will surpass current expectations over the next decade, as demand for air travel returns.
‘HIGH QUALITY COMPANIES WITH ATTRACTIVE LONG-TERM METRICS, WHOSE SHORT-TERM OUTLOOK IS CLOUDED BY THE LINGERING EFFECTS OF THE PANDEMIC’
DIY Investor Magazine · Feb 2022 18