Tetrem Capital Management - CI Investments

More documents

Recommendations

Info

Investment philosophy and approachTetrem adheres to a contrarian, value-based philosophy. The firm believes that controversy creates investmentopportunities and by staying focused on the long-term value of a company, it can capitalize on irrational investorbehaviour to produce exceptional, risk-adjusted returns.Tetrem identifies investment candidates from a combination of quantitative screens, thematic views and general research.Its managers then perform fundamental, bottom-up analysis in order to gain a deeper understanding of investmentcontroversies, determine an estimate of fair value, and develop an investment thesis. They set price levels at which theywould be willing to buy and then monitor for developments that confirm or challenge the thesis.Investment processReview of key investment criteriaEach time Tetrem analyzes a company,these are its questions:MEANREVERSIONValuationIs the stock undervalued?Are valuation spreads narrow or wide?Mean reversionIs profitability temporarily or permanently impaired?Is valuation temporarily low or is it a value trap?VALUATIONREVIEWOF KEYINVESTMENTCRITERIAECONOMICMOATEconomic moatIs the competitive position sustainable?Is the balance sheet strong?RISKRiskDoes the stock help to diversify the portfolio?Is there a sufficient margin of safety?
Development of an investment thesisThe investment thesis is a clear statement of why the stock is an attractive investment opportunity. It covers importantaspects of the investment case, including the nature of the investment controversy, valuation and risk-reward, potentialcatalysts and thematic fit.Determination of fair valueTetrem’s research efforts focus on determining a company’s fair value by developing a view of its normalized earnings.To achieve this, analysts model the company five years into the future and then apply a normalized multiple to theseearnings. They develop three potential scenarios of fair value: Base Case, Bull Case and Bear Case (see chart for example).The portfolio managers assign a probability to each scenario, which leads to an estimate of the stock’s fair value. Theythen compare the upside potential with the downside risk and require a sufficient margin of safety before investing.Base case: Tetrem’s estimate, using conservative assumptions, of the company’s earnings and target price undernormalized conditions.Bull case: Tetrem’s estimate, using optimistic assumptions, of the company’s earnings and target price if things gobetter than expected.Bear case: Tetrem’s estimate, using harsh assumptions, of the company’s earnings and target price if the controversyturns out to be permanent.$30$25$20$15$10$5$12Bull – $25 (30% Probability)Base – $20 (50% Probability)Probability-Weighted Average Price $19.50Bear – $10 (20% Probability)$0Sep-08Jun-09Mar-10Dec-10Sep-11Jun-12Mar-13Dec-13Sep-14
Page 2 and 3: Tetrem Capital Management is an inv
Page 6 and 7: Portfolio constructionTetrem constr
Page 8: Fund Codes(All fund codes begin wit

Tetrem Capital Management - CI Investments

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?