We follow a bottom-up process based on a disciplined evaluation of companies through direct visits. Stock selection is the major source of alpha. No stock is bought without our managers having first met management, and detailed notes then written. We estimate a company’s worth in two stages: quality then price. Quality is defined in reference to management, business focus, balance sheet and corporate governance. Price is calculated relative to key financial ratios, market, peer group and business prospects.
Top-down factors are secondary in portfolio construction, with diversification rather than formal controls guiding geographical and sector weights. Little regard is paid to stock size, other than to ensure liquidity. Aberdeen portfolios are generally conservatively run, with an emphasis on traditional buy-and-hold, with top-slicing/topping up preferred to outright trades, resulting in low turnover. Typically they have higher return on equity/assets and lower debt–to-equity than market average.
Portfolios are managed on a team basis, with investment managers doing their own research and analysis. Teams operate independently but each has a model portfolio that contains its best ideas, and forms the basis for portfolios, be they retail or institutional. All ideas are shared via formal committees and common databases, with desk heads and the CIO enforcing consistency across the Group.