The investment strategy provided by Sceptre Investment Management is based upon detailed fundamental analysis of a company and its industry.

(i) We need to understand the business of a company in great depth before making an investment and seek to find the key parameters which drive profitability. These may be a particularly high quality service, a distribution system, a patented invention or another factor which gives a strong competitive advantage to the business. When the parameters are identified we then estimate the sustainability and predictability of future returns on capital and, more importantly, real future cashflows.

(ii) We are looking for excellence in terms of the returns attainable in the business and the sustainability of those returns as the business grows and/or competitors enter the market. Very few companies are immune to the economic cycle but those that are flexible enough to adapt are likely to generate more cash than those who are not over the whole cycle.

(iii) It is logical to expect that high quality companies with high returns should trade at a price premium to their asset base and realtive to their competitors and we hope and expect that this will be the case at least eventually. Very often the market can take a different view and interpret a mis-timed acquisition as a huge mistake or a sector re-rating can affect all the companies within a sector and highly cash generative companies become rated similarly to the poorer companies. These types of changes, along with different balance sheet structures, can lead to short term under valuation windows when out of fashion companies can be bought very cheaply with high margins of safety.

(iv) Investors still tend to behave in a herd-like fashion with certain sectors and stocks being in or out of favour for periods of time. Occasionally these periods can be very long (as in the TMT bubble or the recent Commodity bubble) but more often they are shorter term and due to differing interest rate expectations, macroeconomic outlooks, war or terrorism. In all of these scenarios mis-pricing often occurs and it generates potential investment opportunities. Detailed research of the sector and companies involved may show that the problems are not long term and the market has discounted a much larger problem than we perceive and this can lead to under valuation.