How we manage Global Equities?

Investment Philosophy

We employ a "bottom-up" stock selection approach to investing in global equities. We consider the MSCI Developed and Emerging Markets as our starting universe and then methodically shrink our potential investment universe by applying strict quantitative criteria. Over time we have found that this approach has had the dual benefit of: a) eliminating poor quality companies from investment consideration and, b) focused our research efforts on a smaller / higher quality universe of companies.

Our approach to investing in global equities is based on the firm belief that a portfolio of very high quality businesses will deliver above average returns over the medium to long term. With this in mind, we seek to identify superior companies with sustainable competitive advantages and an ability to consistently generate above average returns on capital.

We believe company quality will ultimately drive share prices over time, and as such we aim to identify leaders within their respective sectors. We define a 'high quality company' as one with an attractive combination of: Quality Management, Consistent Profitability, Franchise Strength, Financial Strength and Favourable Business Drivers. Through the use of quantitative screening and ranking techniques, we identify potentially attractive investment opportunities. This approach allows a relatively small team to actively research a smaller, higher quality universe of companies.

We adopt a long-term approach to investing, with the average holding period for stocks typically at least three to five years. Having said this, we also aim to generate alpha by diligently adjusting position weightings to reflect our current levels of conviction on an ongoing basis.

Investment Style

While we do not actively seek to manage our portfolios according to any particular style, our portfolio’s display 'style-neutral' investment characteristics. Generally speaking, our portfolio valuations are similar to index valuations, however our qualitative characteristics are superior to those of the index.

We invest in companies based on their investment merit determined by their future prospects, quality and valuation. We use this approach because we believe that all potential investments need to be analysed in the context of multiple investment attributes.

By not limiting our investment universe by growth or value characteristics in isolation, we believe that in comparison to other investment approaches, we are better positioned to deliver positive relative returns that display greater consistency across investment cycles. This is demonstrated by our performance track record, which has shown consistent alpha generation across a range of different markets.

Investment Process

Our investment process consists of several distinct steps:

  1. Establish Universe

    The first, and arguably, most important step in our process is to establish an investible universe from which to build our portfolio. We do this by applying several quantitative filters that accurately reflect our investment philosophy. In summary, we aim to identify companies that are able to consistently generate attractive returns on shareholders funds. We feel that this specific attribute enables us to identify companies that can not only generate attractive long-term returns, but also do so with relatively low levels of earnings and share price volatility.

    Our starting point is all companies domiciled in the MSCI developed and emerging countries: approximately 73,000 companies.

    We then apply the following criteria to refine our investment universe to one which is smaller, higher quality & more workable:

    1. Market Capitalisation > A$1 billion
    2. Return on Equity > 15% (Current year estimate)
    3. Return on Equity > 15% (One year ago)
    4. Return on Equity > 15% (Two years ago)

    This results in a high quality and more manageable investible universe of approximately 1,000 global companies / or 1.4% of our original universe. These companies will typically exhibit a history of strong earnings and high levels of profitability.

  2. Research Prioritisation

    The 'Research Prioritisation' stage of our process helps us develop and monitor a smaller focused list of securities. Specifically, we use live quantitative ranking models to identify the best opportunities within our universe at any one time. Stocks are awarded a 'quality' score based on various fundamental metrics and then assigned target P/E premiums / discounts. We can then apply these target earnings multiples to identify the best opportunities and largest mispricings at any one time.

  3. Fundamental Research

    Once companies are identified through our quantitative ranking process, we research companies within our qualitative research framework.

    Our research is extensive and is sourced from a wide range of internal and external sources. It primarily utilises internal research analysis, broker research, company sourced data and financial data sourced from a range of financial data providers. Members of the BAM investment team also travel overseas to attend conferences and undertake company visits including meetings with management.

    In undertaking company research, our investment team places a heavy emphasis upon key business attributes that characterise and define successful businesses. These attributes include:

    • Quality management
    • Profitability
    • Franchise strength,
    • Financial strength, and
    • Key business drivers.

    Companies that score strongly across the above key attributes will be considered for inclusion in the portfolio, subject to valuation considerations discussed below.

  4. Valuation Analysis

    The valuation part of our investment process is aimed at identifying quality companies that are currently mispriced. By comparing companies to global sector peers, we form a clear view of a company’s appropriate valuation. The difference between the current valuation and our estimated valuation will ultimately determine the attractiveness of the investment.

  5. Portfolio Construction

    Portfolio construction guidelines:

    • Number of positions: 100 – 130
    • Diversified approach – by sector & geography
    • No pre-determined sector / geography exposure limits
    • Ex-ante tracking error range of 3.0% – 4.5%
    • Large cap bias
    • Small / Mid cap exposure (<A$10b market cap), up to 20%
    • Cash position, up to 5%
    • Emerging markets exposure, up to 10%
    • Moderate portfolio turnover, typically 20-40% per annum
    • Individual positions typically below 2% - limited to 3%

  6. Buy / Sell Disciplines


    • New positions added subject to process
    • Position size determined by conviction: quality & value
    • Positions sold when:
      1. Initial view is invalidated
      2. Stock can be replaced by a better idea
      3. Valuation becomes excessive
Bell Asset Management