1. Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process, and the make-up of the investment team?
Evenlode is an independent asset manager with over $7bn in assets under management across three active equity strategies - sharing a common investment philosophy and process.
We see equity investments as fractional ownership stakes in real companies and believe that owning high quality companies at sensible valuations should drive excellent long-term, risk-adjusted returns. We define quality companies as those which can sustain high returns on invested capital for a long time. These companies commonly have a durable competitive advantage, operate in a market with structural growth drivers, and continuously invest to improve their competitive position. These companies also tend to be ‘asset light' in that they generate high cash flows relative to their asset base, and enjoy pricing power, as clients value the products and services above the cost of provision. These ‘quality' characteristics underpin their ability to compound cash flow through cycles.
The investment process focuses on active management of valuation, liquidity, and idiosyncratic business risk. This is coupled with a proactive approach to stewardship and engagement that helps encourage positive change, bolstering long-term shareholder value. Our risk management discipline allows us to actively manage risk exposures and promotes portfolio resilience across a wide range of macroeconomic conditions.
The Evenlode shared investment philosophy and process allows us to take a team-based approach; this enables us to draw on the expertise and experience of the entire 18-person investment team - including 4 dedicated stewardship analysts. Our collegiate style also helps manage behavioural biases and ensures that we remain consistent with our philosophy.
2. How are you positioning your portfolio?
Responsible risk management is core to achieving long-term returns. This is why we look for resilient businesses with repeat purchase models that generate consistent streams of excess cash flows. Our investment process biases us away from asset intensive companies that produce commodities, such as energy companies, miners, or banks. This combination means that Evenlode funds have naturally lower levels of volatility in comparison to our peers.
We bias the portfolio toward businesses with lower idiosyncratic risk, and companies that are investing ahead of their competitors - rather than positioning for specific macro trends. This leads to companies that are able to incrementally improve their competitive advantages and gain market share over time. These businesses have intangible assets that differentiate them from their peers. Our favourite type of intangible is the network effect; these are businesses where the value of the service offered grows with the number of customers. The credit card networks, Mastercard and Visa, are an example. The value of the cards to a consumer is dependent on the number of shop/merchants that will accept the card, and vice versa. This network effect is very difficult to displace, and both Mastercard and Visa have won market share of global transactions during the transition from cash to digital payments.
3. Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We invest in several business-to-business data providers, including RELX, which provides the LexisNexis law library, and Verisk, with an unrivalled database of U.S. insurance claim data. Both of these businesses provide a high value service to clients, who integrate the critical data into their operations. The risks and costs to the client of switching providers are sufficiently high that clients are willing to pay well above the cost of the data provision. However, neither RELX nor Verisk are resting on their laurels. Both companies are making investments in data analysis tools and artificial intelligence technology to improve the quality of the service provided, and to glean new insights from their proprietary datasets. Both companies also benefit from a market tailwind. In the U.S., corporate legal spending rose by almost 30% in 2022, driven by increased regulation, privacy considerations, and compliance requirements. This trend supports RELX - who offer a range of services to address these needs. Similarly, Verisk is able to take advantage of a tightening insurance market in the U.S., as pressure has increased on insurance companies to invest in new tools to improve their efficiency.
