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Ken Wotton speaks to City Wire about how his bottom-up fundamentals approach impacts stock selection

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Ken discusses how he aims to bring the best attributes of a private equity approach to investing in public markets and apply those insights to the Livingbridge high-conviction funds.

Explaining his approach to picking stocks, Ken says: 

Our focus is on bottom-up fundamentals analysis. We use a quantitative framework to rate our conviction, and that score is then used in buy and sell decision making, and to determine the weighting an investment carries in our funds. The score is based on management, strategy, market opportunity, market position and business model, financials, and valuation and liquidity.

Entrepreneurial and high-quality management teams are a key driver of business growth and shareholder value creation. This has led to an active approach to evaluating the quality and effectiveness of management teams and organisational structures.

We look for robust and stable operating platforms, and evaluate best practices in financial discipline and board governance. We also establish whether the platform has scalable infrastructure and whether there is capacity to handle greater volumes of business and trade.

When considering investment opportunities and our existing portfolio companies, we assess the market position of the company, including its strategic positioning, and if management can clearly define and articulate their genuine addressable market. We also look to understand each company’s potential for international expansion and ability to make acquisitions, as well as how management assess the possibilities of these opportunities, and how they enhance strategic value.

Looking at the profit and cashflow growth potential over the anticipated life of the investment, as well as the potential to pay an attractive and growing dividend as a business matures, is also key. We consider key sensitivities to growth both on the upside and downside.

We also consider visibility of revenues and earnings, concentration risks, vulnerability to external shocks outside the control of management, as well as the key value drivers of the business.

We screen out a substantial proportion of the investment universe, including sectors and financial profiles that carry binary investment risk and greater potential volatility of returns.

Above everything, we want to keep an unwavering focus on absolute risk, and the preservation of investor capital is built in to every investment decision we take."

 

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