Touchstone’s approach to investing can be described as Quality at a Reasonable Price (QARP), based on the careful consideration of both investment risk (quality) and expected return (price). This produces a portfolio that is style unaware and can include both value and growth, depending on the risk/return trade-offs available across our universe of securities at any given time.
We combine bottom-up fundamental analysis and an index unaware approach to capital allocation – where portfolio positions are based on the risk/return trade-off inherent in each opportunity, rather than index weights. Our proprietary share ranking and risk management tools support construction and management of portfolios consistent with our style as a QARP manager.
Our investment process incorporates the following stages.
Share risk assessment: individual risk (quality) scoring conducted for securities based on our multi-factor assessment framework. Pre-screening across a range of factors excludes securities that fail to meet minimum quality criteria.
Forecasting and valuation: an in-depth understanding of industry and business prospects, translated to financial forecasts and expected returns for all securities over our investment horizon.
Portfolio construction: we attempt to create well-diversified, index unaware portfolios comprised of our highest conviction ideas, while paying regard to other relevant considerations such as share price volatility and correlation, liquidity and identifiable risk factors.
Portfolio risk management: a range of risk management tools are employed to ensure portfolios are consistently built from our best bottom-up stock ideas and remain true to style, while not being unintentionally or excessively exposed to market or macro level risks, such as interest rates, commodity prices, exchanges rates and other factors.