Our approach to investing

Identifying value through macro economic thinking and fundamental research.

Our investment policy committee

• We have gathered a diverse team of seasoned professionals who evaluate the operating environment for securities, exploring the macro forces and thematic trends that drive business and impact the flow of capital worldwide to guide our asset allocation decisions.
• We are investors, not traders. Independent research is fundamental to our work — we identify those securities with uncommon value and the ability to deliver absolute returns and generate long-term success.
• The committee also reviews portfolios, discusses positions and weightings, confirms our investment thesis for each portfolio holding, and conducts risk assessments.

Identifying value through macro economic thinking and fundamental research

• ARS draws its investment ideas from three areas: global catalysts, sector and industry dynamics, and individual company research. Our evaluation of global catalysts and industry dynamics provides the framework that forms or reinforces our outlook for growth. The ARS fundamental research process assesses both the enterprise value (current and future) and expected growth for a business.
• We weigh these views to determine our conviction with regard to company and industry weightings. We often value business on an enterprise-wide basis as if we were purchasing the entire company. ARS identifies and appraises a selected list of companies on three levels: value screens, growth screens and soft screens.
  – Valuation screens assess P/E, price/cash flow, price/sales, market value/asset value, and market value/reserve value.
  – Growth screens target the earnings growth rate, cash flow growth rate, free cash flow growth rate, and product cycles.
  – Soft screens identify factors such as institutional ownership, relative value to peers, insider ownership, and relative value to the S&P 500, analyst coverage, relative historic valuation and dividend yield. The ability of company management to execute is a critical factor in the investment selection process.

Defining and managing risk

• Risk management begins with the valuation of each security before investment. As value investors, we believe our ability to identify misvalued companies — whether undervalued or underappreciated — with important earnings growth provides the opportunity to achieve significant absolute returns without taking on undue risk.
• Investments are monitored on an ongoing basis. “What if” assessments are conducted on all levels of investment research — the global economy, sector, industry and individual business. These assessments focus on selection as well as avoidance.