Tenax Financials UCITS Fund PLC » Investment Strategy

Investment Process

Stock screening:
Using a proprietary bottom-up valuation screening tool the managers assess the expected fair value evolution over time of a stock and how it trades on an absolute and relative basis compared to its long-term price history.

Company meetings:
The conclusion of company meetings is translated into bottom-up estimates, typically driven by divisional forecasts in order to generate group P&L and balance sheet expectations.

Consensus analysis:
The difference between the managers' and consensus expectations are analysed in order to isolate sources of alpha and the time period over which this is expected to be achieved.

Stock/industry catalysts:
A performance catalyst timeline for stocks and/or the industry is monitored. Typically this includes results presentations, investor days, management roadshows, peer results, industry data releases etc.

Systemic risk analysis:
The external risks that a position will expose the fund to are isolated, including equity market risk, liquidity, risk appetite, short-term interest rates, long bond yields, currencies and credit risk. Importantly, a risk management strategy is devised for each position.

Manager discussion:
Ideas are presented formally and the decision process reviewed.

Trading strategy isolated:
The position investment strategy is determined and an entry strategy based on short-term trading dynamics, liquidity, valuation and catalysts is devised.

Portfolio Construction

Investments within the fund are grouped in four distinct strategies:

Core positions
These positions are the backbone of the portfolio with a longer-term investment horizon. Derived from a bottom-up process involving meeting management and detailed modelling of company P&L and balance sheets, the managers are looking for situations where there is a gap in expectations between Tenax and market consensus. The high level of manager conviction required in these stocks will typically see position sizes of 5% and greater.

Alpha positions
Stocks chosen are tactical positions resulting from short-term catalysts such as investor days, result presentations, industry data releases and macro trends. As a result of the shorter time horizon for positive risk reward we typically see position sizes closer to 3%.

Merger and Acquisition positions
The managers believe that the financials sector offers huge potential for consolidation over time. Identifying targets rather than acquirers, our analysis focuses on value, with an emphasis on the downside risk should speculation dissipate.

Beta positions
It is intended that the volatility of the fund be kept within a target range of 8-10% and in order to manage this, stocks or indices are prudently selected to counterbalance the possible effects on the portfolio of other positions.