Conceptually, we think of it as âWarren Buffett on steroidsâ. The idea is to mirror the very best of the fundamental research style and approach that Warren Buffett has brought to the world of investments but, at the same time, to âautomateâ the process so that every listed stock in the world is subject to scrutiny. Although it is in principle an active strategy, it differs from most active managers in a number of ways: There is no use of earnings estimates, valuation is not an investment criteria, benchmarking is meaningless and market timing is not used. Furthermore, there is no leverage involved, the process is fully transparent and the portfolio is very liquid.
REAP calculates more than 400 million key ratios annually from a database containing over 100,000 listed companies around the world. Each company is then rated on the basis of the combined score and REAP invests in the top 50 names.
Chart 5: Track Record of REAP
The investment concept has been up and running for some years, delivering excellent performance â see chart 5. Our intention is to launch a global fund. We are currently looking for seed investors. Call us if you want to hear more.
At Absolute Return Partners, we pride ourselves on âOutside the Boxâ solutions. Long term followers of our firm will have noticed that we havenât done much historically in the equity space. The reason is simple â we didnât believe we could add much value. This is about to change. We have done a lot of research in recent months and believe we have come up with some interesting solutions. We see no need to settle for a plain vanilla index fund if there are more interesting alternatives available.
We have given you two possible solutions today. Give us a call on +44 20 8939 2900 or send an email to info@arpllp.com if any of this has whetted your appetite. In the meantime, enjoy the summer. Something is astray here in London. Wimbledon is on and the weather is good. Better enjoy it while it lasts. We will be back with another Absolute Return Letter on or around 1st September.
The trade names Fundamental IndexÂŽ, RAFIÂŽ, and the Research Affiliates corporate name and logo are registered trademarks and are the exclusive intellectual property of Research Affiliates, LLC.
This material has been prepared by Absolute Return Partners LLP ("ARP"). ARP is authorised and regulated by the Financial Services Authority. It is provided for information purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. The information provided is not intended to provide a sufficient basis on which to make an investment decision. Information and opinions presented in this material have been obtained or derived from sources believed by ARP to be reliable, but ARP makes no representation as to their accuracy or completeness. ARP accepts no liability for any loss arising from the use of this material. The results referred to in this document are not a guide to the future performance of ARP. The value of investments can go down as well as up and the implementation of the approach described does not guarantee positive performance. Any reference to potential asset allocation and potential returns do not represent and should not be interpreted as projections.
Notes:
1: âExploiting Uncertainty in Investment Marketsâ, CREATE Research, 2010. You can find the full report here: here
2: S&P Indices, Research Insights, March 2010. You can find the full report here.
3: Source: Â âWhy active fund managers often underperform the S&P500: The Impact of size and skewnessâ, which you can find here.
4: Source: âAn Overwrought Orthodoxyâ, Institutional Investor, December 2006
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