1. Investment philosophy and process
The following are the key elements underpinning our investment philosophy across all our portfolios.
- Our products are aligned with the investment needs of our clients. This is what drives a long-term target return mindset, with a high awareness of the risk associated with achieving those returns.
- We make investment decisions with a long-term time horizon which means that we think like business owners as opposed to short term traders.
- All our investments are driven by a fundamental understanding of the quality and valuation of a particular investment.
- We are active fund managers. This means that investment decisions are driven by what we believe is the right thing to do as opposed to managing relative to a benchmark. This results in high conviction positioning across our portfolios. An avoidance of risk is a major driver of our conviction calls.
- We regard risk as the permanent loss of capital and believe that over the long run this focus will result in better investment decisions and superior performing portfolios.
A disciplined investment process complements our strong Investment philosophy. The following are the key elements of that process.
- Asset allocation decisions in our multi-asset funds are based on an analysis of where we see the risk and opportunity profile of different asset classes. Our asset allocation decisions are conducted within ranges which are clearly communicated to clients.
- Individual security selection is based on a bottom-up analysis focusing on the fundamentals of individual securities. The fundamentals we focus on across all asset classes are based on three quality drivers: cash flow generation, solid balance sheets and an ability to generate profitable growth.
- The result of this bottom-up selection process is particularly evident in our equity portfolios, which consistently exhibit strong cash flow returns on capital, low leverage, as well as higher than market dividend yields, coupled with price earnings ratios lower than the market.
- Avoiding risk is at the core of our investment philosophy and is integrated into our investment process. There are three risks that we focus on – valuation, quality of underlying investment and the risk associated with ESG factors. When initial securities are purchased they are accessed through these lenses and if either risk is considered too high the securities are not included in the portfolios. Once portfolios are constructed there is continuous monitoring of these risks and positions are exited if any of the risks has risen to a level where we deem that the risk of a resulting permanent loss of capital is high.
2. Approach to ESG
Appian Impact Fund (the Fund)
The Fund does not pursue a sustainability mandate but is actively managed in a socially responsible manner. The Manager has integrated sustainability risks as part of its investment decision-making process. Stocks are subject to an ethical screen and the Fund avoids stocks in conflict with global ESG norms. Accordingly, based on our current approach, the universe of investments available is more limited than others and this could result in performance that is better or worse than the performance of the other funds.
While not pursuing a sustainable mandate or focus, the Alternative Investment Fund Manager (AIFM) has integrated sustainability risks as part of its investment decision-making process. A sustainability risk is an ESG event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment. The likely impacts of sustainability risks on the returns of the fund will depend on the fund’s exposure to investments that are vulnerable to sustainability risks and the materiality of the sustainability risks.
3. All funds – no consideration of sustainability adverse impacts
EU Sustainable Finance Disclosure Regulation (SFDR) requires the Manager to determine whether it considers the principal adverse impacts of its investment decisions on sustainability factors at Manager level. The Manager is supportive of the aim of this requirement which is to improve transparency to investors and the market generally as to how to integrate the consideration of the adverse impacts of investment decisions on sustainability factors. However, the Manager could not gather and/or measure all of the data on which it would be obliged by SFDR to report, or it could not do so systematically, consistently and at a reasonable cost to investors.