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Process-driven long-term investing

Selecting the right companies and profiting from their long-term value creation is our key performance driver, as the share price of a company follows earnings per share growth over the long term.

We focus on business quality, growth prospects, and sustainability to identify the few companies that qualify as “2X” ideas. Our goal is to combine the art of stock selection with the science of risk management, with the end being the generation of sustainable long-term outperformance for our investors.

Idea Generation

We employ advanced quantitative models in combination with qualitative input from our sector analysts to constantly screen our Investment Universe of some 2,600 listed mid and large cap companies. To help us navigate this ever-changing landscape, we have developed a proprietary software platform that enables the identification, tracking, and processing of investment ideas. In addition, we regularly undertake comparative studies across industries to identify trends and changes in the competitive environment.

Idea Verification

In our view, quantitative systems alone are not enough to verify an investment idea. Unstructured but relevant information still demands a mix of human intuition and experience to interpret. Structure and discipline play a large role in our idea verification processes as we strive for repeatable outcomes.

Stock selection is an art, but one in which the chances of success are significantly enhanced with superior tools and diligence in following a process. From our offices in Zurich, New York, and Hong Kong, we perform rigorous fundamental research on companies in which we see a 2X return potential. We combine information gathered through financial analysis, management meetings, expert interviews, forensic studies, and alternative data sets into a holistic 4M (Macro, Market, Moat, Management) Analysis that enables us to compare companies across industries and countries.

Macro

Market

Moat

Management

We look for companies for which success is not overly dependent on volatile and unpredictable Macro factors. We are wary of highly cyclical businesses and exclude companies that have revenues directly linked to commodity prices, that are overly subject to regulatory or political interference, or that are significantly exposed to transitional and physical environmental risks. Ideally, the companies stand to profit from structural tailwinds and have the potential to grow revenues well ahead of global GDP.

The Market must have a visible runway for growth. At the company level, we look for market leaders that consistently strengthen their positions while generating above-average returns on invested capital. We like companies that have differentiated products meriting a price premium, and that have recurring revenues and pose high switching costs for customers.

We look for companies with a strong Moat around their market position. Moats can include: economies of scale and scope, a sustainable lead in asset, process or technology, network effects, brand, culture, or licenses and patents.

Only those companies with Managements demonstrating both competence and integrity are considered as 2Xideas investments. A history of effective capital allocation and transparent shareholder communications is essential, as are high social and corporate governance standards that include remuneration policies aligning with their shareholders’ interests.

Idea Implementation

Building a great investment portfolio requires more than just investing in great companies. We collect inputs from each of our specialist investment professionals and aggregate them to make the final decisions on the timing of additions and removals. This collective process mitigates a number of common behavioral biases.

We use a quantitative approach to portfolio optimization with the aim of achieving a balanced risk profile similar to global equity markets.

Idea Engagement

Investing with a long-term horizon makes us a strong partner for our investee companies. We constructively engage with boards and management teams and execute our voting rights in accordance with our long-term vision for each company. Working with industry and sustainability experts, we provide input to management teams on strengthening corporate governance and improving financial and non-financial disclosure.

We encourage companies to communicate transparently on material ESG exposures, set targets, and report accordingly, preferably along the standard reporting frameworks such as the Sustainability Accounting Standards Board (“SASB”) and the Task Force on Climate-related Financial Disclosures (“TCFD”). We place particular emphasis on transparent Scope 1-2-3 CO2 emissions reporting and principle adverse impacts data.

Idea Transparency

The detailed information that our proprietary systems gather at each step of our investment process drives a rigorous feedback loop that enables us to constantly improve as a firm.

We offer our investors transparency through our deep-dive Investment Cases, our comprehensive Industry Insights, and by sharing detailed information on all our investment decisions. This level of transparency enables our investors to stay invested even during difficult times in the markets, which is essential if they are to continue profiting from the power of long-term compounding.