Our first step is to screen Canadian public markets for stocks that are currently earning high returns on common equity, typically in excess of 15% at a minimum. Basic screens, on-going communication with our global network of industry contacts, industry publications and financial media are all potential sources of new ideas.
Once we have identified a company that meets our initial criteria, we make several adjustments to company/analyst earnings forecasts in order to take into account non-cash items. Subsequent to the adjustments being made, we enter the relevant data into our proprietary database where each company’s ROE, valuation and share price momentum are scored in relation to all other stocks in our universe.
Those stocks that achieve the highest aggregate scores in our database are then subject to comprehensive quantitative analysis, which includes extensive earnings modeling as well as scenario analysis.
Our final step involves face to face meetings with company management, channel checks and discussions with industry analysts. If this process is successful, the position is added to the portfolio, constantly monitored and actively traded.