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Absolute Return Partners LLP, trading as Vinculum, will be the investment manager and distributor of the OEIC.
Absolute Return Partners LLP is a limited liability partnership registered in England and Wales under registered
no. OC303480 and is authorised and regulated by the Financial Services Authority. Registered office: 16 Water
Lane, Richmond, TW9 1TJ.
IFDS Managers Limited, a limited company incorporated in England and Wales and authorised and regulated
by the Financial Services Authority, will be the authorised corporate director (ACD) of the OEIC. Registered
office: IFDS House, St Nicholas Lane, Basildon, Essex SS15 5FS
Vinculum Fund Management LLP (VFM LLP) is a limited liability partnership registered in England and Wales
under registered no.OC358306, registered office: Staple Ash House, Froxfield Green, Froxfield, Hampshire
GU32 1DH. Vinculum Fund Management LLP is an Appointed Representative of Absolute Return Partners LLP
(trading as Vinculum) for the marketing of all long-only equity investment products using the StockR8
investment process.
Vinculum is the trading name of Absolute Return Partners LLP for all long-only equity investment products
using the StockR8 investment process. The objective is to create, over time, a series of long-only equity
portfolios aimed at professional investors and advisers and designed to provide long-term capital appreciation
in excess of that of the relevant equity market benchmark. All of the long-only equity fund portfolios will be
constructed according to the StockR8 investment process for which Vinculum Fund Management LLP has
exclusive global usage and branding rights*.
Fondsmaeglerselskabet StockRate Asset Management A/S (StockRate) - a limited liability company
incorporated under the laws of Denmark - will act as a Sub-Investment Adviser for all Vinculum branded long-
only investment products.
Vinculum is a trade mark of Vinculum Fund Management LLP, registered (no. 257620) in the UK with the
Intellectual Property Office (the Mark). This Mark has been licensed to Absolute Return Partners LLP (trading
as Vinculum), IFDS Managers Limited and IM Vinculum Funds.
3. Insight
We believe that the companies that offer investors the highest probability
of delivering a superior long term return are those which can demonstrate
the Highest Economic Quality.
around 35,000 companies worldwide - to generate profits for its James Montier The Little
shareholders) and financial strength (i.e. those companies with the highest Book of Behavioural
proven ability again relatively to preserve capital at hand). Measures Investing.
which are based not on conjecture but on fact sourced from audited,
publicly available data.
Analysis should be
penetrating not
We also hold that company behaviour is repetitive. Broadly speaking, good prophetic.
companies repeatedly do the right things (though not necessarily the same
Ben Graham
things) and bad companies repeatedly do the wrong things.
1. Universe Definition
2. Rating
3. Stability Overlay
4. Final Assessment
5. Implementation
6. Company Monitor
7. Portfolio Management
8. Rebalance
1 Universe Definition
.
The StockR8 process begins by collating publicly available financial
information derived from published company annual reports on a
universe of around 65,000 companies (across nearly 150 countries)
from a database supplied monthly by an external data provider: to
date audited data going back as far as 25 years has been collected.
EARNINGS FINANCIAL
STRENGTH STRENGTH
TEXT HERE
Companies with Companies with
the highest ability the highest
relatively to ability relatively
generate profit to preserve capital
for shareholders at hand
For company
illustrations see
Appendix 1.
Each company is represented in the Power Grid by its ticker symbol
(see Figure 2).
Having rated all 35,000 companies, the process now focuses on only
those with the highest ratings what are termed 5 star
companies.
3. Stability Overlay
The top 100 global companies from the now rated universe of
35,000 companies are picked out. These are the highest rated of the
5 star companies in the top right hand corner of the Power Grid
and effectively constitute the best of the best.
To these 100 companies a stability overlay (the third dimension to
the Power Grid) is applied to track and determine the consistency of
their performance over time. This measures a companys staying
power its ability to maintain its relative combined earnings and
financial strength over a sustained period of time and which is
measured by calculating the variance of the combined earnings and
financial strength score over the last 5 years.
The stability factor is applied to the Power Grid by colour coding the
ticker symbols with light green denoting those companies which
have delivered the lowest variation in financial performance (good
or bad) over time (see Figure 3).
STAYING
POWER
4. Final Assessment
The final assessment of the shortlisted stocks comprises two parts;
firstly a check on their liquidity and secondly, a quality check of the
data behind the rating of each company.
For the final check each of the remaining companies on the shortlist
are analyzed in order to double-check and revalidate their 5 Star
rating. Reviewed are: the quality of the data input, access to
information (companies, for instance, which do not produce annual
reports in English are usually excluded) and recent news flow (i.e.
information relating to a companys combined earnings and financial
strength which has appeared since the publication of the last annual
report and which might affect its 5 Star rating).
With the final checks complete, the final list of the top 50 rated
global stocks is compiled.
5. Implementation
On all portfolios the investable amount will be applied to the
selected investments on an equally-weighted basis.
6. Company Monitor
All portfolio holdings will be set up on Bloomberg and filtered to
show corporate actions, earnings announcements, SEC filings and
the like. These are monitored daily.
Every month, therefore, the stock ratings are re-calculated using the
new audited financial data.
Having done so, the ratings are realigned accordingly. Where a new
5 star stock is identified it will be added to the portfolio but only at
the expense of a substantially deteriorating company (see above).
8. Rebalance
Once a year on or around 1st June the portfolios are rebalanced so
that each stock position is once more equally weighted at 2% per
company in the 50 stock global portfolio, for example.
___________________________________________________________________________
A feature of the StockR8 process is that the rating information can be presented graphically,
at the push of a button, using the Power Grid format.
The format is that of a traditional scatter-gram with each plot representing a discrete year.
Earnings strength is plotted off the X axis and financial strength off the Y axis. The highest
rated companies are to be found in the top right hand corner of the grid and the lowest
rated in the bottom left hand corner.
The following are examples of how a number of differently rated companies are
represented on the Power Grid.
All charts displayed in this document are sourced from StockRate as at 18th November 2011.
Appendix 2. / Related Reading.
___________________________________________________________________________
Akerlof, G., and Shiller, R., 2009, Animal Spirits: How human psychology drives the economy,
and why it matters for global capitalism (Princeton).
Balen, M., 2002, A Very English Deceit The Secret History of the South Sea Bubble and the
First Great Financial Scandal (Fourth Estate).
Barras, L., Scaillet, O. and Wermers, R., 2005, False Discoveries in Mutual Fund Performance:
Measuring Luck in Estimated Alphas (Swiss Finance Institute/Research Paper Series 08-18).
Bogle, John, 1999, Common Sense on Mutual Funds: New Imperatives for the Intelligent
Investor (John Wiley & Sons).
Brealey, R., Stewart, M. and Allen, F., 2009, Priciples of Corporate Finance (9 th edition,
McGraw Hill International Edition).
Clare, A., Cuthbertson, K. and Nitzsche, D., 2009, An Empirical Investigation into the
Performance of UK Pension Fund Managers, Journal of Pension Economics and Finance,
Volume 9 / Issue 04.
Collins, J. and Porras, J., 1994, Built to Last: Successful Habits of Visionary Companies
(Harper Collins).
Fama, E. and French, K.,2009, Luck Versus skill in the Cross Section of Mutual Fund Returns
(Journal of Finance).
Greenblatt, J., 2007, The Little Book that Beats the Market (Simon & Schuster).
Henriksson, R. and Merton, R., 1981, On Maket Timing and Investment Performance:
Statistical Procedures for Evaluation Forecasting Skills, Journal of Finance, Vol. 54, pp. 513-
533.
Kahneman, D. and Tversky, A., 1982, Judgement under Uncertainty: Heuristics and Biases
(Cambridge University Press).
Kahneman, D. and Tversky, A., 2000, Choices, Values and Frames (Cambridge University
Press).
Kindleberger, C. and Aliber, R., 2005, Manias, Panics and Crashes: A history of Financial
Crises (5th edition, New York).
Koller, T., Dobbs, R and Huyett, B., 2011, Value: The Four Cornerstones of Corporate Finance
(John Wiley & Sons).
Lanchester,J., 2010, Whoops! Why Everyone Owes Everyone And No One Can Pay (Allen
Lane).
Lowenstein, L., 2008, The Investors Dilemma: How Mutual Funds Are Betraying Your Trust
And What To Do About It (John Wiley & Sons).
Mauldin, J., 2004, Bulls Eye Investing: Targeting Real Returns in a Smoke and Mirrors
Market (John Wiley & Sons).
Montier, J., 2002, Behavioural Finance: Insights into Irrational Minds and Markets (John
Wiley & Sons).
Montier, J., 2010, The Little Book of Behavioural Investing How Not to Be Your Own Worst
Enemy (John Wiley & Sons).
Taleb, N., 2004, Fooled by Randomness: The Hidden Role of Chance in the Markets and in
Life (Texere).
Treyor, J. and Mazuy, K., 1966, Can Mutual Funds Outguess the Market?, Harvard Business
Review, Vol.44, pp. 66-86
Welch, I., Goyal, A, 2008, A Comprehensive Look at the Empirical Performance of Equity
Premium Prediction,The Review of Financial Studies / v 21 n 4).
This material has been prepared and issued by Vinculum Fund Management LLP (VFM LLP) as an appointed
representative of Absolute Return Partners LLP, trading as Vinculum. Vinculum Fund Management LLP is a
limited liability partnership registered in England and Wales under registered no.OC358306. Registered office:
Staple Ash House, Froxfield Green, Froxfield, Hampshire GU32 1DH
Absolute Return Partners LLP is a limited liability partnership registered in England and Wales under
registered no. OC303480 and authorised and regulated by the Financial Services Authority. Registered office:
16 Water Lane, Richmond, TW9 1TJ
The material provided in this document is for informational purposes only, is intended for your use only and
does not constitute an invitation or offer to subscribe for or purchase any of the products or services
mentioned. The information provided is not intended to provide a sufficient basis on which to make an
investment decision. Any investment should be made pursuant to written subscription materials. The
information provided in this material will be subject to, and expressly qualified by, any information contained
in the subscription material.
Information and opinions presented in this material are subject to change without notice. They have been
obtained or derived from sources believed by VFM LLP and Vinculum to be reliable, but VFM LLP and Vinculum
make no representation as to their accuracy or completeness. VFM LLP and Vinculum accept no liability for any
loss arising from the use of this material. Past performance is not necessarily a guide to future performance
and an investor may not get back the amount originally invested. Nor are the results referred to in this
document a guide to future performance. The value of investments can go down as well as up and the
implementation of the approach described in this document does not guarantee positive performance. Any
reference to potential asset allocation and potential returns do not represent and should not be interpreted as
projections.
The investments discussed in this report may not be suitable for all investors. Investors should make their own
investment decisions based upon their own financial objectives and financial resources and it should be noted
that investment involves risk. Investors should also be aware that the market price of the securities discussed
in this report may be volatile. Where investment is made in currencies other than the investors base currency,
movements in exchange rates will have an effect on the value, either favourable or unfavourable. Any tax
reliefs mentioned are those currently available and are subject to change. Their value depends on the personal
circumstances of the investor.
Although certain information has been obtained from sources believed to be reliable, we do not guarantee its
accuracy, completeness or fairness. We have relied upon and assumed without independent verification, the
accuracy and completeness of all information available from public sources. Any views expressed in this
presentation are current as of the date of this presentation and are for informational purposes only. They do
not constitute a recommendation to buy, sell or hold any security and should not be construed as investment
advice. No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii)
distributed to any person that is not an employee, director or agent of the recipient, without the prior written
consent of VFM LLP or Vinculum.
[ Vinculum is a registered trade mark of Vinculum Fund Management LLP (VFM LLP). PAWE and Pay as
We Earn are trademarks of VFM LLP. VFM LLP has licensed Vinculum to Absolute Returns Partners LLP
(trading as Vinculum), IFDS Managers Limited and IM Vinculum Funds.]