Investment Philosophy
The Steadyhand investment philosophy is based on four key principles:
- Making money (absolute returns) is more important than tracking an index (relative returns).
Our goal is to grow your capital and to preserve your wealth, in good markets and bad. The best way to do this is to build non-benchmark oriented portfolios comprised of businesses that possess the most compelling competitive advantages, growth prospects and valuations. Our funds’ assets are concentrated in businesses that make money and stand to excel in most economic environments, not just today’s. This means that our funds may have little exposure to stocks or industries that are breaking new highs or sinking to new lows based on prevailing market trends, and they will look markedly different than the index. At times, our approach may take some of the food off the bull’s table, but more importantly, it also curbs the bear’s appetite. - A fund’s assets should be concentrated in its portfolio manager’s best ideas.
While diversification is a crucial tool for mitigating risk, overdiversification waters down a portfolio and negates the benefits of active management. A fund with a vast number of holdings stands little chance of outperforming the market. Managers who concentrate their fund’s holdings also concentrate their research efforts and are less distracted by the ‘noise’ that permeates the market. - The less constraints placed on a portfolio manager, the greater their available opportunities and ability to outperform.
The theory behind placing constraints on a portfolio manager is that it helps reduce risk and encourages diversification by forcing the manager to spread a fund’s assets across multiple industries or geographic regions, and it prohibits a manager from straying too far from an index (or benchmark). In reality, constraints tie a manager’s hands and prevent them from investing a fund’s assets in the stocks and industries where they see the greatest potential to fulfill the fund’s investment objective. Portfolio managers realize the value of diversification; they shouldn’t be constrained as to how they can best achieve it. - Low portfolio turnover is key to superior returns. Frequent trading signifies a lack of confidence, decisiveness and tax awareness.
Portfolio managers invest in businesses and ideas. A solid business and a great idea shouldn’t be sold for short-term gain, as they should stand to produce attractive profits and returns for years to come. Our fund managers invest with conviction and typically hold the businesses in which they invest for several years. Low portfolio turnover also leads to greater tax-efficiency, which means more money in your pocket at the end of the day.
