Slater Investments employs an investment selection process that
integrates rigorous, time-tested quantitative models with
qualitative judgement. Slater Investments believes that investing
in growth shares using value filters provides the optimal
combination of risk and reward in the long term, particularly when
combined with discipline, intellectual rigor and a healthy dose of
The different stages of our core investment selection process
are outlined below:
Our bias is growth. We unashamedly search for growth as the core
to our process, be it pure growth, recovery or income. This core of
growth coupled with other factors provides us with the margin of
safety that helps to protect against downside risk.
- Slater Growth
A "pure" growth fund, we programme for a below average PEG (a
measure for quantifying the price of forecast earnings growth). A
significantly lower PEG factor than the market as a whole provides
a margin of safety. In addition, it leaves scope for an upwards
status change in the PE ratio.
We have the growth programme as the core but it is supplemented by
programmes searching for discount to net assets, companies trading
at a discount to cash and recovery situations.
- Slater Income
This fund does not have dynamic growth companies in the portfolio
as these rarely pay dividends. The search is for companies that
have rising dividends over a two year period.
This initial screen tends to reduce the UK stockmarket to a more
manageable universe of shares which are then scrutinised in depth.
We then weed out any companies which should not be valued on the
basis of our initial screens -like any analytical tool, our screens
should not be used out of context.
We then apply further sieves, depending on the mandate. One of
the first things we do is to check cash flow. Cash flow can give
early warnings about creative accounting. We focus on companies
with strong balance sheets, powerful competitive positions, high
returns on capital and rising margins and sales per share. We
interrogate company accounts and analysts' forecasts vigorously. We
also place a great deal of emphasis on positive recent trading
statements and directors' share dealings.
Meeting the Company
If we are still interested in a company at this stage, we meet
with senior company management to get a greater understanding of
the visibility of earnings and margins. We also focus on
understanding both the opportunities and risks facing the business
in the future.
Investment Committee Meetings
At our weekly Investment Committee, we debate portfolio
construction and which candidates, if any, should be added to each
of the portfolios. One of three things will then happen:
- The company is accepted as one that meets our investment
requirements and a suitable investment will be made
- The company is rejected as not meeting our investment
- Further work is still required to decide whether the company
meets our investment requirements