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Investment Philosophy
Our approach is value based. We are drawn towards companies which trade on low multiples with
scope for long term dividend growth. Our five year projections allow us to invest in a mixture of
companies with differing growth characteristics.
We look to identify companies which have sustainable revenue growth characteristics, which can
drive improvements in operating margins, profits and dividends. We invest for the long term and our
approach is to buy and hold. We maintain template models for all our investments which contain
historic profit and loss, balance sheet and cash flow data as well as five year projections.
Saracen Fund Managers construct portfolios from the bottom up, however we are very cognisant of
the economic background when analysing the prospects for all our investments.
As a result, we believe our approach should work successfully through economic and market cycles.
Investment Process
Idea Generation
We have many inputs when looking for ideas for the portfolio. A proprietary screen, Internal
research ideas, stockbroker research, company meetings and news flow, to help identify potential
new investments are just some of the tools we use in this process
Stock Templates
Once we have identified a potential investment for inclusion in the portfolio, a detailed stock
template is then completed. This template incorporates financial analysis with proprietary five year
projections. We will only invest once we are satisfied the stocks fulfil our value criteria. Additionally,
corporate governance and SRI criteria are also screened. We are unencumbered by bureaucracy and
can move quickly once our due diligence is completed. This process relies heavily on the ability and
experience of our analysts.
We have a fundamental approach towards analysing an investment. Our templates not only project
earnings but also assess their likely impact on cash flows and balance sheets. Unlike most research
produced by stockbrokers, we are independent and adopt a long-term time horizon. Time spent
looking at best and worst cases allow us to assess the operational gearing of individual businesses
and provide a broader appreciation of risk than many other approaches.
Companies with sustainable revenue growth which flows through to both profits and cash flows are
our main target. We have a strong bias towards businesses which have long-term potential to grow
revenue, profits and dividends. Our preference is for companies with low levels of financial gearing
which can self-fund investment programs. Our objective is to provide a reliable and growing income
stream which we expect to be reflected in the dividend policies of our chosen investments.
Investment Research Meeting
All templates are presented and debated at the fortnightly “Investment Research Meeting” which is
chaired by the Head of Research and attended by all investment staff. At the conclusion of the
debate, the stock will be given a Buy, Hold or Sell recommendation. The template will then be
uploaded into the research database. This database contains details of all stocks researched. All
templates of stocks that are held in the portfolio will be updated at least twice a year.
Portfolio Construction
Following the investment meeting, the Fund Managers will then discuss the appropriateness of the
stock for inclusion in the fund taking into account the portfolio objective and risk characteristics.
When we initiate a holding it will represent between 1.5% and 4% of the portfolio depending on the
valuation, risk profile and the uniqueness of the business. Diversification is important to reduce
portfolio risk. As part of our risk management process we will reduce any holding which increases in
value to over 5% of Saracen Global Income and Growth Fund and over 7.5% for Saracen Growth
Fund.
Our funds will hold between 30-60 stocks. This limit has been in place since the funds were
launched.
To avoid style risk, we have sensible limits on sector exposure. Homogenous sectors such as Utilities,
Oil & Gas, Healthcare and financials are limited to a maximum position of 20%. Partly differentiated
sectors such as Technology, consumer Services and Basic Materials are limited to a maximum
position of 30%. Differentiated sectors such as Industrials and Consumer Goods are limited to a
maximum position of 40%.
Sell Discipline
We have a disciplined sell process. All our holdings are subject to in depth analysis prior to buying. If
there has been a change in the fundamentals of the business or our original belief proves flawed, we
will reassess whether we should continue to support the position. We also re-assess for changes to
the extent and probability of the “worst case” analysis, on valuation grounds and when holding a
different stock would improve the quality of our portfolio.
Portfolio Reviews
The Head of Research will review the fund each month to ensure that the best research ideas are
reflected within the portfolios and review risk and limit constraints.
Disclaimer
This document contains information relating to Saracen Fund Managers Ltd and Saracen Investment Funds ICVC (‘the Company’).
Saracen Fund Managers Ltd is authorised and regulated by the Financial Conduct Authority (‘FCA’).
This document is issued and approved by Saracen Fund Managers Ltd (‘SFM’) for communication in the United Kingdom only to persons of
a kind to whom this document may, for the time being, be communicated by SFM by virtue of the Financial Services Markets Act 2000
(‘FSMA’) (Promotion of Collective Investment Schemes) (Exemptions) (Amendment) Order 2005, rule 3.11.2 and annex 5 of the Conduct of
Business Rules of the FCA or any other exemption to section 238 of the FSMA (‘Permitted Recipients’).
The Company is an open-ended umbrella fund incorporated as a variable capital investment company in Scotland, under registration
number 180545 and authorised by the FSA pursuant to Part XIII of the Companies Act 1990. SFM acts as an Investment Manager of the
Company.
The distribution of this document in certain jurisdictions may be restricted by law, therefore, people into whose possession this document
comes should inform themselves about and observe any such restrictions. Any such distribution could result in a violation of the law of
such jurisdiction.
Investment in the Company should be considered high risk. Past performance should not be seen as an indication of future performance.
The value of an investment in shares of the Company and any income derived from them can go down as well as up and may be subject to
sudden and substantial falls. An investor may not be able to get back the amount invested and the loss on realisation may be very high and
could result in a substantial or complete loss of the investment. In addition, an investor who realises shares in the Company after a short
period may not realise the amount originally invested as a result of charges made on the issue and/or redemption of shares. The value of
shares for the purpose of purchases may differ from their value for the purpose of redemptions.