Investment process

Research and idea generation

At Standard Life Investments, all our investment decisions are guided by our Focus on Change investment philosophy. We are looking for non-consensus insights into companies’ prospects. Essentially, we identify companies whose prospects are better than is understood and priced in by the rest of the market. Examples might include companies experiencing changes in technology, profitability or reinvestment opportunities.

The majority of our stock-specific insights are generated through information and analysis gained from one-on-one company meetings. This is supplemented by extensive primary research, industry expert consultations and other sources.

Our best ideas are those which involve a material change which we have identified and corroborated through a number of sources, utilising our deep knowledge of companies. The scale of our analytical resources allows us to identify a large number of such ideas. These ideas are often uncorrelated, allowing us to construct well-diversified portfolios driven by stock selection.

All investment decisions and research analysis are communicated through answers to our five questions analysis, ensuring that our global equities team can quickly and easily access the diverse range of opportunities across the global universe.

Common investment language – five question analysis

Stock selection and portfolio construction

The global equities team has ultimate discretion over which stocks represent the best ideas and the weighting to be applied to each within the portfolio. In order to identify the best ideas, there are two critical components which the investment team takes into account:

The stocks in the portfolio are selected based on our strongest non-consensus ideas and take into account the levels of conviction and upside materiality. The position size is determined taking into account the volatility of the stock (in particular the downside risk).

The sector and geographic weights are a residual component of the stock selection, but these are monitored and managed to ensure we are not taking too much risk. We also monitor and manage any thematic risks to ensure that no unintended risk dominates the portfolio.

Ultimately, we aim to construct a portfolio of diversified stock-specific ideas, prioritising stock selection above all else, as this, in our view, is the most consistent source of investment returns.

Risk management

One of the cornerstones of our investment process is a practical, hands-on approach to both measuring and managing risk. Risk is monitored on three different levels - by the fund manager, the investment governance team (which includes the risk and investment restrictions control teams), and the client account director. These controls and oversight measures ensure that risk management is an integral part of our equity management process.