Philosophy/Strategy
The Cundill approach to investing is based on the "value" philosophy pioneered in the 1950’s by the dean of securities analysis and originator of the "value" proposition, Dr. Benjamin Graham.
This approach is based on the identification of fundamentally undervalued securities which are selling at a discount to their perceived intrinsic, liquidation or break-up values. This is done on a global basis and includes publicly traded and privately issued securities, common and preferred stocks, bonds, debentures including distressed debt, convertible securities and obligations of various governments.
Unlike more conventional approaches to investing, the Cundill method is not based on forecasting the economy or corporate earnings, does not rely on market timing, nor does it weigh the portfolio by industry or country sector.
The approach is asset-oriented and requires a longer term perspective and patience. The major benefit of the "value" principle is that investors experience lower volatility. The performance of the Cundill accounts – in a wide variety of economic and market environments and over long periods of time – has demonstrated the absolute and relative benefits of this investment approach.
The Cundill strategy involves:
The holding of cash reserves if sufficient bargains cannot be found.
The purchase of distressed corporate or sovereign debt where the underlying assets provide an acceptable margin of safety.
Taking a long-term perspective, because values often take significant time to crystallize.
The use of derivatives to hedge positions (currency forwards, futures, put options) or to create positions where doing so is more efficient via derivatives than in the cash markets.
On occasion and within defined limits, the shorting of market indices (e.g. the S&P 500 or the Nikkei 225, etc.).
Short positions are generally not taken in individual stocks, except in accounts mandated for shorting.
The Cundill approach is focused on selecting undervalued securities. No weighting or "portfolio construction" occurs to achieve index country, sector or industry exposure. The Group does not rely on economic or company earnings forecasts and does not attempt to time markets. Positions are generally accumulated and sold progressively. Cundill makes no attempt to mirror or manage against the portfolio weightings of benchmarks such as MSCI World Index. Country weightings have dramatically changed over time in global mandated portfolios. We expect this trend will continue. The Group will generally take positions only in stocks in which it can accumulate a position at least 1% of the portfolio. Investment positions are fairly concentrated, with 25-30 stocks usually accounting for 75% of all invested assets. Our most concentrated accounts feature 8–10 positions.
When attractive situations cannot be identified, the Group is willing to accumulate cash positions.
Variations between portfolios may occur as a result of the following:
- Some portfolios will be subject to client or regulatory restrictions. For example, US ERISA portfolios do not permit short positions. Some clients mandate limited or zero cash positions.
- Some portfolios are designed with different objectives in mind.
- Some portfolios will take more concentrated positions than others.
- Different portfolios will have different cash flow patterns over time (as clients contribute or redeem investments), leading to some variations in holdings.
- As a rule, when a new position is taken or a current one is unwound, the security purchased or sold is allocated equally among various portfolios.
