Investment approach

A key strength of our contrarian approach is that it provides profitable opportunities in all market environments as there are always underappreciated areas of the market from which to source ideas.

As contrarian investors, we see three distinct investment categories.

First, we have those that we describe as ugly ducklings – unloved shares that most investors shun. These companies have endured an extended period of poor operating performance and, for the majority, the near-term outlook continues to appear uninspiring. However, we see their out-of-favour status as an opportunity and can foresee the circumstances in which these investments will surprise on the upside. These stocks often have a higher than average dividend yield which can provide an attractive income while we wait for our investment thesis to unfold.

The second category consists of companies where change is afoot. These companies have seen a significant improvement in their prospects but this progress has not yet been recognised by the market. Often, they are disliked for historical reasons, with investors unwilling to credit the signs of change that are so far evident.

Thirdly, we have stocks where we see more to come. Unlike the first two categories, these companies are generally recognised as good businesses but we see an opportunity as the market does not appreciate the scope for further improvement.

In our experience, the best investments can, over time, move along an axis from ‘ugly ducklings’ through ‘change is afoot’ and into the ‘more to come’ category, but we are happy to purchase and hold investments in any of the categories.