Home / Investment Focus

Investment focus

First Avenue focuses purely in long only equities as a specialist manager. Within equities, our research shows that investing in high quality companies generates superior outcomes compared to any other strategy. This is because high quality companies are able to produce persistently high and stable profits independent of market conditions by controlling ‘fundamental risk’. As the returns earned by equity holders are ultimately driven by corporate profits, this results in superior stock returns with lower ‘price risk’ or volatility. Modern corporate finance theory would expect investors to receive higher rates of return on investment for bearing greater risk. With this view of the world, high quality companies appear to be an anomaly delivering higher returns with lower risk. This phenomenon is better explained by superinvestors such as Warren Buffet. These investors, instead, study the economic moat (competitive advantage) of a company and its ability to protect profitability from competitive pressures.

Back To Top

responsible investing

Investing responsibly and ethically

At Northstar, we believe that companies with good corporate governance policies, an entrenched ethical corporate culture and an acknowledgement for environmental, political and socioeconomic matters tend to create sustainable value over time. As stewards of our clients’ savings, it is our job to support these companies and the wider Investment community to adhere to good Responsible Investing Practices. We endorse the Code for Responsible Investing in South Africa (CRISA) and are a signatory to the Principles for Responsible Investing (PRI), backed by the UN. To view our CRISA statement click here. To view a summary of our proxy votes for the 6 months ended March 2023 click here.

Please see below for our Responsible Investing Policy and Proxy Voting Policy Documents:

Northstar Responsible Investment Policy with Climate Change Northstar Proxy Voting Policy Principles for Responsible Investment
Back To Top

High Quality Companies

High quality companies possess sustainable competitive advantages that allow them to dominate the profit pool of an industry and earn returns above their cost of capital for extended periods. This may be through an oligopolistic industry structure, high switching costs, intangibles (brands and IP), network effect, structural cost advantages or minimum efficient scale (see below). These advantages or economic moats enable a company remain resilient throughout the entire economic cycle by leveraging unique attributes such as superior pricing power or cost control. Our research shows that this universe of companies has a high propensity to outperform the market and also offers greater downside protection during periods of distress.

  • Long-term

    Duration increases the probability of achieving real returns for equities.

  • Quality

    Back-testing demonstrates that owning quality assets at reasonable prices (value) leads to outperformance.

  • Focused universe

    This ensures deeper insights and reduces the margin for error.

Back To Top

High through the cycle returns

On Equities

By restricting our universe to high quality companies only, our portfolio is inherently of lower fundamental risk. Our view is that risk (not valuation) is a continuum from low to extreme risk. As one moves up the continuum, the investment philosophy also shifts from a probabilistic exercise to pure speculation highly reliant on timing. Instead of trying to predict the turn of the economic cycle or movements in commodity prices and exchange rates, we study the sustainability of a company’s economic moat to arrive at an intrinsic value. In our world, the greatest risk is a loss of quality and earnings power through economic changes and deterioration of management as put forward by Benjamin Graham. We therefore aim for consistently high returns through the entire economic cycle. With consistency, our portfolio are able to benefit from the phenomenon called COMPOUNDING which was described by Albert Einstein as the ‘greatest mathematical discovery of all time’.

An overview of Equities

Adrian Clayton gives an overview of Northstar’s equity investment process.

Equity investment process
  • Industry landscape

    In depth analysis and understanding of industry landscapes, barriers to entry and structural growth drivers.

  • Competitive advantage

    Determination of the source, trend and durability of a company's competitive advantage.

  • Management

    Understanding strategic direction and capital allocation decision making and ensuring that incentive structures are aligned with the interests of our clients.

  • Sustainability

    Assessing whether environmental and governance practices as well as the approach to social and human capital ensure a sustainable future.

Back To Top

CLOSER TO THE TRUTH

An overview of our business and investment focus

Northstar team discuss what 'closer to the truth' means to them in the context of Northstar and their role within the business.

Back To Top

FIXED INCOME

On Fixed Income

Northstar applies a quantitative as well as a fundamental approach to analysing fixed income assets. Quants is used to screen for value opportunities across the various fixed income asset classes and fundamental inputs drive the valuation modeling which we apply. The outcome of our process is an actively managed and diversified fixed income portfolio of high quality holdings which provide inflation-beating returns and a stable income.

An overview of Fixed Income

Mark Seymour gives an overview of Northstar’s fixed income investment process.

fixed income investment process
  • Economic

    Focuses on the path of interest rates and inflation taking into account the potential economic and political risks.

  • Credit Risk

    High credit quality profile with predominant holdings in senior A rated bank paper.

  • Bonds

    Optimise the blend between floating rate notes, fixed coupon bonds and inflation linked bonds based on the phase of the interest rate cycle and expected returns.

  • Other assets

    High quality listed property stocks, global bonds and global currency holdings offset inflation and interest rate risk.

  • Portfolio

    Actively managed and diversified portfolio of high credit quality holdings to provide inflation beating returns and a stable income.

other pages in this section

Back To Top Who we are Our team