What?
An index and style-agnostic global equity strategy focused on smaller companies with the potential for exceptional upside over a 10 year horizon. The objective is to generate significant capital appreciation that outperforms broad global equity market indices over the long term.
Global Small Cap
Global Small Cap
Why?
We believe the case for investing in global smaller companies is compelling from both a potential return and diversification perspective. It is a deeply heterogenous universe within which fundamentals demonstrably drive share prices. However, global smaller companies indices are particularly flawed as benchmarks. The main indices are essentially country smaller companies indices bolted together meaning, for example, that a $20bn market cap company in the US is a smaller company but a $7bn one in the UK is not. The nature of smaller companies indices also means they include many weak and dying companies, which depress returns in smaller companies indices more than in larger cap ones. Goodhart’s strategy is constructed specifically to focus on a universe of companies that exhibit certain specific characteristics shared historically by companies that generate exceptional performance over the very long term. The investment process and focus is the result of exhaustive research into “10-baggers” i.e. companies that have achieve returns historically of over 1,000% over 10 years. We believer it is practical to build a diversified global smaller companies portfolio of companies with meaningfully higher probability of generating exceptional performance long term and in doing so avoid many of the weaknesses of benchmark-oriented global smaller companies strategies.
How?
There are 3 key components to the stock selection process. First, a focus on companies that are predicted to benefit fundamentally positive positive change over the relatively short term. We have a particular focus on types of change that we view as “structural sources of return”. For example, spinoffs tend to perform well for many well documented reasons. Change tends to be mispriced by the market and the price paid on entry into a stock position is important to the total return over the very long term. Second, the process emphasises deep fundamental research into how companies can build what we call a “flywheel” which can be thought of as a self-reinforcing growth engine – something that powers the ability to compound profitable growth over much longer time horizons than the average business. And third the process focuses on the potential for companies to exceed certain specific thresholds for accounting variables over a 10 year horizon. We believe a key strength of the process is the discipline it provides to not waste time on companies that may be attractive investments on a 3-5 year horizon but have no potential to generate really exceptional performance over the longer term. Our research into historic “10-baggers” has also resulted in a disciplined approach to setting explicit “waypoints” on the pathway to success for companies and a deep understanding for the “red flags” that indicate a company is no longer on the right path. The portfolio construction approach emphasises diversification across a range of different types of company that we have identified as offering superior long term probability of exceptional performance