We believe that there are parts of our industry that have forgotten what it is that investors really want. Too often investors face noise and complexity – an industry focused on relative returns and short-term pressures. Woodford Investment Management is different. All of our attention is on providing an absolute long-term return for our clients.
An active strategy
We believe that being an active investor means doing something different from the market and adding value through the investment process.
We invest in the true sense of the word, buying stakes in businesses and helping them to fulfill their long-term potential. Every investment we buy is on merit – we never invest in companies to make our portfolios look more like the index. We are happy for our performance to be compared to the market but we are confident that we can better it over the long term by doing things differently.
We are also active in our engagement with company management teams – this is crucial to our investment approach. We want to represent our investors’ best interests in our discussions with management teams and we engage with management to try to influence change where necessary. Successful investment requires a partnership between managers and owners.
Equity markets take a random walk on a daily basis. The forces of fundamentals and valuation may be over-ridden by sentiment and whim in the short term, but it is the longer time periods that count. We look beyond the short-term noise and focus on the long-term drivers of share prices.
Our investment approach is focused on value discovery, not on price discovery. We believe that by focusing on valuation and identifying companies that can deliver sustainable growth, today or in the future, we can deliver great long-term outcomes for our investors.
Our valuation lens
In essence, we view all companies through the same valuation lens, large or small, quoted or unquoted. We combine rigorous fundamental analysis of companies with our perspective of the economic variables that may impact them. This approach allows us to construct robust investment rationales. We focus on what matters: the long term and the fundamentals.
There are, of course, nuances to this process. With younger companies, we are typically looking to invest before a product or service has made it to the market. The strength of a company’s intellectual property and the research behind it is, therefore, crucial. In these cases, our investment due diligence has a particular focus on establishing a deep understanding of a company’s technology and patent estate, the scope of the long-term market opportunity and the motivations, ambition and alignment of management.
Detailed holistic analysis of all potential investments helps us to arrive at a considered and conservative judgement about value based on a longer-term investment time horizon (typically, for early-stage investments five to 10 years but sometimes longer).
We believe investors expect a return. We don’t think we’ve done a good job if the funds fall in value, even if the market has delivered an even worse outcome. Protecting our investors’ capital is key.
In the case of younger businesses, we do have to tolerate the prospect of loss on a stock-specific basis, although our due diligence efforts are designed to minimise this risk. We aim to achieve capital preservation through diversification, by investing in a larger number of smaller positions.
We acknowledge that there will be periods when our funds fall in value but we believe our disciplined strategy, with a focus on valuation and diligent stock picking, can help us prevent any temporary losses of capital becoming permanent. We focus on absolute risk and on delivering a positive return over the long term.