Anavon employs deep fundamental, bottom-up research to seek out individual long and short opportunities in developed markets with a focus on liquid, large or mid cap stocks. The long portfolio targets high quality businesses with secular growth and competitive advantages where the share price is highly dislocated. The short portfolio seeks to position low quality businesses with structural challenges where the share price is overhyped.
The strategy is designed to protect capital during downturns and capture equity market upside during upturns with a strong focus on risk management.
- Markets are typically short term focused - When businesses undergo change, or face short term challenges, the market can often price in a worst case scenario, creating an asymmetric opportunity - Short term optimism can become detached from fundamental reality
- Deep fundamental and focused research can identify what scenario is priced in and the extent of the price dislocation/disconnect vs. the expected outcome
- A strong risk averse approach centred on downside risk should drive all investment thinking
- Strong belief in the ability to generate returns without taking excessive risks
- Unlevered – preference to select good investments to drive performance, not leverage
- No need to compromise on business quality, size or liquidity
- High conviction portfolio with alpha generation from both longs and shorts – c. 25 on each side
- Balanced market exposure as opposed to market timing
- Low gross exposure
Risk Averse Approach
The strategy is designed to perform well in all market conditions. As stock pickers, performance will be driven by idiosyncratic developments. The Portfolio Managers do not seek to time the market and the strategy avoids exposure to more macro driven sectors such as banks, energy or mining.
Rigorous and proprietary process
Anavon's proprietary analysis involves ensuring an in-depth knowledge of a company and the industry dynamics. The minimum level of research required for a new position to enter the portfolio would include proprietary modelling on the business, a clear understanding of the business drivers and investment risks as well as scenario analysis where we create a specific thesis, expected to play out over 2-3 years. What is key to an investment decision is for the stock to have a strong asymmetric profile, but importantly the risk of losing capital is very limited when considering the worst-case scenario. Our in-depth proprietary, analytical and differentiated research coupled with our long-term approach allows us to take bold and often contrarian views on our investments.