Investment Philosophy & Style
Active Fund Manager - Stock Picking in the Central & Eastern Europe and Global Emerging Markets
Trigon Capital is an active asset manager with a distinct emphasis on stock picking in the equity markets of European Union (EU) new member states and accession countries. We are selectively expanding into global emerging markets. Our focus is on company fundamentals and we search for attractive valuation relative to growth prospects. In addition to blue chips, we make substantial investments into small and medium sized companies. We evaluate each investment case on its own merits. At times our asset allocation may significantly differ from the market index weightings.
Our funds target investors who desire exposure to New Europe and global emerging markets through stock picking. We offer both value and blend style funds based on modest valuation with ample growth prospects. We invest in listed equity securities of the new EU member states and the accession countries. There are close to 600 listed securities in these markets, out of which 300 have passed our screening process. Our funds are invested in approximately 120 different companies. In addition to the CEE region, through our emerging market sector funds, we apply our stock picking investment style in the wide universe of global emerging market equities.
Basis of Investment Strategy – Bottom Up Combined with Top Down
The investment strategy of Trigon Capital is based on two pillars:
First: Bottom up research of individual companies with strong emphasis on small and medium capitalization (SME) firms that are under-covered by the analyst community.
Second: Top-down macro and sector research where investment opportunities are identified on the basis of relevant macro cycles and trends after which we determine appropriate sector weightings.
Bottom up research - Our investment experience from the Central and Eastern European region strongly indicates that superior equity investment opportunities typically exist in the less popular and small capitalisation companies. In our SME investments are highly price sensitive and require that lower liquidity, typical of smaller investments, be compensated by higher potential returns.
Top-down macro and sector research –The impact of economic convergence in the region will differ substantially by sector and the success of any equity investment in the region significantly depends on the chosen sector allocations. At times our asset allocation may significantly differ from the market index weightings.
Economic forecasts - The fund managers and dedicated analysts follow relevant macro data on a daily basis. Up-to-date economic data is presented to the investment committee who then formulates a central macro forecast for each country in the region.
Research – The fund managers and dedicated analysts conduct proprietary research on topics relevant to the investment decisions of the funds. Of particular importance is Trigon’s own research on the regional SME companies. The fund managers and dedicated analysts perform relevant financial analysis of each holding – irrespective of publicised broker research availability. Relevant financial summaries, our own financial projections combined with commentary on news items and important developments are discussed during investment committees.
Sector selection – The fund managers and dedicated analysts develop proposals for the investment committee regarding appropriate sector weightings. Weightings are a function of: relevant long-term economic trends that determine the impact of the economic convergence in the region on particular sectors and market valuations on both absolute and relative basis.
Currency strategy – Depending on the relevant currency movements and macro-economic developments, hedging strategies are implemented to hedge against currency volatility.
Security selection – The fund managers and investment committee place securities in to the portfolios based on our own and third-party analysis. Each investment is evaluated on the basis of its own merits: company fundamentals and price. The funds aim is to allocate a significant portion of capital to relatively less popular and under-covered companies, primarily SME’s to take advantage of the higher return potential. The fund managers and the dedicated analysts devote significant effort to screening, analysing, monitoring and visiting such SME investment targets. We physically visit the company to gain insight into management capability and discover potential hidden value. The underlying philosophy is to invest in a variety of regional securities that offer the best available risk-return characteristics.
Value added – We believe that our own research and visits of under-researched SME investment targets, accumulated knowledge and investment experience in the CEE region contributes 70% to our value added. Our understanding of the macro economic and sector development issues in the CEE region contributes the remaining 30% of our value added. We are applying our accumulated knowledge and proprietary methods to selective expansion in global emerging markets.
Company Selection Process
Our company selection process is divided into three parts: First, the quantitative screening process where we take a look at a company’s financial statements, leverage, growth figures, margins vs. the sector, dividend policy and other quantifiable data. Second, if quantitative screening of the company appears attractive, we visit and interview the management. Company management and transparency is of crucial importance to us. Analysing companies through on-site visits and management interviews accounts for a significant portion of our value added.
Finally, we evaluate the company and invest if the valuation level is attractive. We do not use complicated mathematical models to evaluate companies; instead we apply common sense and simple financial ratios to evaluate our targets. In our view, attractively valued companies are undervalued companies which show fast growth or large dividend yields. We like companies that have low leverage, and are trading at low multiples.