Last week we were sitting at a lunch with our friendly sell side colleagues. Invariably, the topic of conversation moved away from the quality of the Miso Soup to reporting Season, to our performance, and then to the performance of other funds.
The discussion focused on some managers who have gained notoriety through headline-grabbing returns or investment calls. As an observer to the discussion, it was interesting to note how revered they were. On the walk back to the office, it dawned on me that a lot of those funds aren’t around anymore or aren’t as prominent as they once were; yet those peak experiences were how they were remembered.
It made me realise we often make decisions based on snapshots in time, instead of striving to understand a story in its entirety.
We don’t do that at ECP.
We believe the underlying economics of a business — it’s full story — drive its long term returns and companies who are growing their economic footprint (profitably), are better investment opportunities than those that aren’t. We make sure, then, that we know these stories completely before we make a decision. We would rather invest in a smaller number of companies which we understand well, than a large number of companies, of whom we only have a cursory understanding.
As a custodian of other people’s money, we owe it those who’ve invested with us to allocate capital to opportunities that we really believe in, because we’ve done the work.
When times get tough, the line between facts and feelings gets blurry. Having conviction based on a core philosophy helps you move through those snapshots in time and enables you to look back on what was often quite a thrilling tale, confidently.
When we set up the business, we articulated our brand promise and the measures we’d use to track how well we’ve kept that promise to our customers. There were three in total: Firstly, we will never speculate to generate alpha. Secondly, we will always buy high quality franchises for the long term, and not trade them. Finally, we will not diversify to cover up for poor due diligence.
We are happy to say that we’ve delivered on these promises to our investors. Our turnover remains low, we have consistently exhibited a preference for quality and growth and away from value characteristics in our portfolio. And, while our shorter-term numbers have been under pressure, we continue to deliver investment returns for clients over our investment horizon.
As of August 2017, our Ex50 Product produced its first set of 4-year numbers, outperforming our benchmark by 5.7% per annum. While this number was much higher a year ago, we are still happy with the return despite the difficult environment we found ourselves in over the last 12 months.
While it’s unlikely that we will be a regular feature in the headlines, we will continue to focus our attention at identifying, and understanding, long term investment opportunities. This long term focused, bottom up, high conviction investing means we’re less able to answer the questions which focus on the returns in the next 12 months, but mean we are much more able to answer the more relevant questions, of where we’ve invested our client’s money, why and what that means for their wealth in the long-term.