The overarching objective of the Alvia Investment team is to achieve superior risk-adjusted returns on an absolute basis. We do not have a focus on short-term performance relative to benchmarks. Our clients are focused on the long-term preservation of capital and cannot live on relative returns.

Investment Process

Our investment process is impartial to sectors, geographies (for international mandates) and indexes. The investment team’s mindset is that of a private equity investor – we only invest in businesses that we would be comfortable owning outright and expect returns equivalent to that of private equity. The investment process requires the calculation of a “margin of safety”. The margin of safety calculates the difference between the equity value per share calculated in our proprietary financial model to the current share price. If this difference is not material, we will not invest in the company. This does not mean the company is of inferior quality, rather that it is overpriced when considering its future earnings and cash flow potential.

When assessing investment opportunities, the Alvia investment team always ensures it is looking at a company’s earnings and cash flows across a business cycle, particularly when looking at companies which have earnings that are more cyclical in nature. We do acknowledge that all companies experience some element of cyclicality in earnings, however this element of cyclicality varies markedly across the investment universe.

Quantitative Screening

The investment team runs quantitative screens on at least a monthly basis to identify the most up to date investment universe (for listed securities). For private investments, the investment team reviews new opportunities when they are presented and shortlists those considered appropriate for further detailed due diligence.

Investment opportunities (both current portfolio holdings and prospective holdings) are segmented into seven key investment areas:

1. Long-term Compounder: a business that is the leader or one of the leaders in its industry that has consistently delivered growth in revenue, earnings and cash flow across the business cycle.

2. Asset Value Play: a business that is currently priced at a material discount to its book value or net asset value (NAV).

3. Cyclical Opportunity: a business that operates in an industry with earnings that are highly correlated to commodity prices and/or economic activity, where the investment team believes there is a material mispricing relative to the current stage of the economic cycle.

4. Income Buttresses: investments that have a strong and stable income profile with lower levels of price volatility. These investments tend to have a lower (or negative) correlation to typical equity and equity-like securities.

5. Portfolio Hedges: investments that have a low or negative correlation to listed equities and other equity-like asset classes, to reduce the volatility of portfolio returns (e.g. gold, commodities and the US dollar).

6. Unlisted Co-investments: the investment team seeks to complement its listed investments with co-investments in private companies. This is a unique proposition of Alvia’s holistic asset allocation approach to client investment portfolios.

7. Short Propositions: As part of Alvia’s High Conviction Fund, the investment team will selectively enter short positions in listed equities where the team has identified a comprehensive short thesis and the catalysts that will result in the short-term realisation of this thesis. A short thesis will be premised on a fundamental deficiency in the company’s business model, rather than primarily on valuation. The investment team acknowledges the higher degree of risk in short positions and hence approaches this investment area with caution. Alvia’s model portfolios do not have any short positions – as noted above, shorting will only be considered for the Alvia High Conviction Fund.

Detailed Analysis

Shortlisted investment opportunities are analysed in a bottom up manner. The detailed analysis involves both quantitative and qualitative attributes:

  • Quantitative Analysis – Financial Model: incorporates key balance sheet, income statement and cash flow items for historical and forecast periods. Forecasts are prepared by the investment team.
  • Qualitative Review: includes detailed analysis of the business and its key earnings drivers, competitive positioning and management quality, in addition to financial disclosures and reporting consistency.

 

Scoring, Target Weighting & Portfolio Rebalancing

Once the investment team has prepared the quantitative and qualitative analysis for an investment, an investment score is calculated based on Alvia’s proprietary scoring system.

Target portfolio weightings are then established based on the relative investment scores of each of the portfolio constituent companies. Cash balances for each portfolio will be determined at the discretion of the investment team, considering a number of qualitative and quantitative factors.

The investment team reviews target portfolio weightings relative to actual portfolio weightings on a regular basis and makes portfolio adjustments where there are material differences.

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