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David Appleton

Archived News  08/08/2014

Exploring the merits of equities

The commercial incentive of investment banks to stimulate client trading activity through their analysts’ research and the ever more frequent updates by the companies themselves have combined to create a relentless narrative that is both time consuming to follow and often of questionable value.

While this fixation with the short term is an unhealthy one for companies and the stock market overall, it also has the potential to create a richer opportunity set for investors with a longer term time horizon to exploit.

We believe our role as investment managers is to protect and enhance our clients’ real wealth over time and that being overly concerned with relative performance versus peer groups or benchmarks, particularly over short time periods, can prove to be a risky distraction.

We believe our role as investment managers is to protect and enhance our clients’ real wealth over time and that being overly concerned with relative performance versus peer groups or benchmarks, particularly over short time periods, can prove to be a risky distraction. Our focus is consequently on delivering absolute, rather than relative, returns over the medium to long term, and this underpins the way in which we appraise companies as potential investments. We tend to avoid the ‘next big thing’ such as early stage, high growth companies with unproven business models, and instead focus on established, profitable businesses that address clearly identifiable market needs, and whose products or services are both easy to understand and highly valued by their customers. We look for some degree of durable advantage over competitors such as superior scale and distribution, customer relationships, intellectual property or brands. We are particularly attracted by companies that can ‘make their own luck’ by generating profitable growth through fundamental business improvements, rather than relying on favourable market or economic conditions. This could involve investing in new, more efficient plant and machinery, improving customer service, innovating to create superior products, expanding to address new markets, or delivering productivity gains through restructuring. Taking all of these inputs together we try to identify companies that will be long term ‘winners’ in their respective markets and have the potential to sustainably grow profits and dividends to shareholders faster than inflation over the longer term.

We believe our role as investment managers is to protect and enhance our clients’ real wealth over time and that being overly concerned with relative performance versus peer groups or benchmarks, particularly over short time periods, can prove to be a risky distraction.

Having built up a picture of the operational dynamics of a company we then set about translating this analysis into detailed financial forecasts.

Having built up a picture of the operational dynamics of a company we then set about translating this analysis into detailed financial forecasts. This is an important exercise as it allows us both to identify where our view of a company’s prospects differs materially from the consensus, and also assess how resilient the company in question would be in a severe economic downturn. The world is an uncertain place and we feel it is just as important to ask what could go wrong as what could go right. This approach naturally leads us to companies with relatively low levels of debt that can generate sufficient cash to meet their financial obligations (wages, rent, interest payments etc.) even in a stressed scenario. Strong cash generation also creates scope for positive surprises in terms of dividends and other forms of cash returns to shareholders over time. A typical Cornelian UK equity portfolio is currently forecast to grow dividend income at more than twice the rate of inflation, and a number of companies have announced additional cash returns to shareholders this year such as special dividends and share buybacks.  In an unpredictable world cash is indeed king.

David Appleton
Investment Director

Archived News  15/03/2015

Cornelian launch new Income Fund

In response to demand, Cornelian Asset Managers, the Edinburgh-based investment house, have launched an income fund to sit within their multi-asset fund range.

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Archived News  19/09/2014

Referendum on Scottish Independence

Following the outcome of the Scottish Referendum vote, we would like to thank all our clients, professional advisers and supporters located throughout the UK for their continued support and understanding during the Scottish Referendum Campaign.

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