Active Equities

1Q23 Global Equity Update


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Investment Philosophy

At DuPont Capital, we believe share prices follow business fundamentals in the long run. However, chronic short-term thinking and behavioral biases can cause share prices to deviate from the fundamental value of a company. This creates investment opportunities for active managers.



We have found that different asset classes have different return drivers and factor sensitivities. We do not believe in a global ‘one size fits all’ approach, and prefer to focus on harvesting the specific risk premia we have identified through our differentiated research and insights.

We operate in an increasingly interconnected world characterized by rapid and disruptive innovation. We believe investment opportunities arise when the market misjudges the trade-off between valuation, quality, growth opportunity, agents of change, and company risk.

We believe a disciplined investment process coupled with a long-term investment horizon allows us to look past the transitory noise and volatility caused by short-term news flow and market sentiment to deliver better and more consistent risk-adjusted returns.



Capabilities

At DuPont Capital, we believe share prices follow business fundamentals in the long run. However, chronic short-term thinking and behavioral biases can cause share prices to deviate from the fundamental value of a company. This creates investment opportunities for active managers.




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US Large and Mid-Cap Value Creators

Fundamental bottom up strategy seeking to generate alpha over the long term by taking concentrated positions in high quality companies that systematically deploy accretive capital allocation policies.


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International Equity

Fundamental bottom up strategy seeking to generate alpha over the long term by taking concentrated positions in companies with unique business models and high or improving return characteristics.


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Merger Arbitrage and Merger Arbitrage Enhanced

Fundamental bottom up strategy of pending mergers seeking a stable and consistent source of absolute return with low volatility and minimal correlation to broader equity and fixed income markets.


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“Our focused range of active equity strategies target specific market inefficiencies, providing our clients with differentiated alpha opportunities.”

Lode Devlaminck
Managing Director, Equities


Approach

Our investment process is designed to identify companies or areas of the market where current market prices underestimate the long-term characteristics of a company and where we can see signs of fundamental improvement.

Valuation

We believe that a disciplined approach to research and valuation is critical to identify long-term investment opportunities and to mitigate the behavioral biases that tend to creep into active investment processes. Given the changing economic landscape and the impact of technological innovation, we assess valuation more from a forward-looking perspective than a historic one.

Signs of improvement

It can take a long time before a company’s competitive advantages, accretive management actions, or structural improvements are recognized by the market. We specify and monitor the necessary signs of improvement for each investment company. Actionable and auditable valuation drivers help to minimize the risk and impact of value traps.

Quality

Lower trend growth and the emergence of new business models are placing greater emphasis on the sustainability and volatility of a company’s return and growth profile. Traditional valuation approaches are more relevant when analyzed within the context of the industry structure, the business model, and quality of the company’s management team.

Risk

Success ratios in investing are far from 100%, and we acknowledge that we will make mistakes. To minimize the impact of our forecast errors, we account for fundamental and stock specific risks through position sizing, sensible diversification, and sell discipline. The primary risks to our fundamental strategies do not lie in the benchmark, but in our original investment thesis not playing out. The main risks to our quantitative strategies lie in the selection and calibration of our models’ factors.



Structure

Our boutique of boutiques structure ensures each team is fully accountable for and highly incentivized for the performance of the strategy. We believe a smaller work environment, housed in a single location, fosters respect among all members of all investment teams, and allows us to bring differentiated insights and conviction into every decision.

Small teams

Our goal is to bring differentiated insights and conviction into our investment process. However, we find that large groups with consensus driven decision making are not well-equipped to achieve this. We operate a boutique of boutiques structure and keep our teams of decision makers deliberately small.

Flexible decision making

We believe a smaller working environment gives all members of the investment team the opportunity to have a significant impact on the composition and performance of their strategy. It also allows the teams to be flexible and nimble in their decision making.

Research focus

All our investment professionals are, first and foremost, research analysts, regardless of their position or seniority. Our research and classification framework allow us to focus our research on those areas where we see the greatest potential. We focus on value-added research, rather than maintenance research.

Single location

We foster an environment of respect where everyone’s voice can be heard. A centralized research group housed in a single location allows all of our investment teams to freely exchange views and research quickly and effectively, and leverages firm resources to the fullest. We feel this structure helps to avoid home biases that can develop with multiple locations.



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