INVESTMENT PROCESS ::

Investment Screening

Setanta's Portfolio Managers undertake their own independent investment research when analysing a company. To help identify new opportunities screening tools are used within each global sector. Each Portfolio Manager initially screens the relevant sector using valuation and quality filters, which vary according to sector.

The value metrics used include cash flow and asset based metrics e.g. Free Cash Flow Yield, Price to Book Value and Price to Earnings.

An emphasis is placed on investing in companies that can demonstrate strong quality financial attributes with particular focus on profitability (ROE, ROA) and cash flow returns (CFROIC) as well as manageable debt (Debt/Equity, Debt/EBITDA, Interest Cover).

Once opportunities are identified the real work begins. A full fundamental analysis is independently undertaken by the portfolio manager on a company and any investment recommendation shared with the entire team.

Consistent Review of Stock Ideas

The Portfolio Managers present their ideas to the rest of the investment team, by way of an equity report and a financial model at regular investment team meetings. The team reviews and challenges the investment idea to ensure that the Portfolio Manager has built a strong investment case and that the value and quality criteria are met.

Portfolios are relatively concentrated with typically around 120 stocks in a global equity portfolio and approximately 40 stocks in a regional portfolio. Risk parameters are applied to sector weights and single stock positions.

The Global Equity Fund is the keystone portfolio for other regional, country and specialist funds and many of the stocks in these funds are chosen from the Global Equity Fund. Any stock required for a fund which is not in the broader Global Equity Fund is reviewed by the sector manager to ensure it passes the same value and quality criteria.

Setanta aims to invest for the long term, i.e. three to five years or longer.

Sell Discipline

The sale of a stock typically arises for one or more of the following reasons:

• Stock reaches fair value which leads to a bias to sell; however a sale may be delayed for good reason, such as business and price momentum
• Events undermine fundamental investment case
• Top-down adjustments to sector weights
• Alternative and more attractive bottom-up idea “bumps out” an existing holding