Mawer Investment Management Ltd. systematically creates broadly diversified portfolios of wealth-creating companies, with excellent management teams, bought at discounts to their intrinsic values.
There are five key ideas in this investment approach that should be highlighted.
We focus only on companies that create wealth, or those that deliver a return on capital greater than their cost of capital over time. We believe that this is the main reason to assume investment risk. It implies that we do not buy companies just because they are "cheap" and that we will ignore those companies which do not offer the prospect of earning a satisfactory return on invested capital.
An excellent management team is experienced and educated in regards to the company’s business operations. We conduct interviews with the management, and, if possible, suppliers and customers to determine whether the management team is capable of maintaining the growth and competitive advantages of their firm.
Discount to Intrinsic Value
Once we have identified a wealth-creating company, we try to buy it at a discount to its intrinsic value, or the price an objective, well-informed businessperson would pay for the company. It is not enough to know that a company is wealth-creating. One must also know how much wealth it is expected to create in order to know how much to pay for a share of the enterprise. Our primary tool for estimating intrinsic value is a discounted cash flow model.
Broadly Diversified Portfolios
Given our concern with investment risk, and not just investment return, our portfolios are broadly diversified by industry and economic sensitivity. Please note, though, that we are not driven by our exposure relative to underlying index weights.
Following this investment approach systematically is what should enable us to take advantage of the market opportunities identified in our investment philosophy. We believe that a systematic approach ensures discipline, enhances efficiency, minimizes errors and reduces risk.
Mawer exploits inefficiently priced areas of the Canadian bond market through the flexible application of sector allocation, security selection and trading strategies.
There are three keys to our strategy that should be highlighted.
Sector Allocation Strategy
We typically overweight those sectors of the fixed income market that provide attractive yields relative to Government of Canada bonds. That is, we generally emphasize investment grade corporate, provincial, and municipal bonds.
Security Selection Strategy
We actively seek attractively priced securities using in-house credit analysis. Credit risk is also researched and monitored using dealer research and credit rating agency reports from Standard & Poor’s and Dominion Bond Rating Service. Credit risk is integral to our style as we seek opportunities to pick-up yield through security selection without sacrifice of credit quality.
We monitor bond markets in an effort to identify and exploit mispriced securities. These anomaly areas of the market may hold potential investment opportunities. We utilize the internal sources of our research team and strong, focused dealer relationships to generate investment ideas and execute on them.