Every aspect of our process and philosophy is geared towards long-term growth.
Navigating Away from the Benchmark
The first chart is a measure of our 'active orientation'. The scores on the y axis measure how different a portfolio composition is from the benchmark (unique ideas). This is referred to as our 'active share'. The scores on the x axis measure how different our returns are from our benchmark. This is referred to as our 'tracking error' and is a measure of concentration (conviction) in those ideas. The middle lines in the chart help to group managers into quadrants, the top right quadrant being the most active (unique ideas, and concentrated), and the bottom left being the least active (not so unique, and diversified). ECP’s position demonstrates our commitment to strong active management.
Consistent Investment Process
Having a high active orientation is great, but as a manager we also need to be able to articulate where we’re taking risk (and looking for return) in our portfolio. As a bottom up manager, you would expect that most of our tracking error (risk) should be driven by stock selection (equity), as opposed to being driven primarily by other factors (e.g. currency and commodity ). This chart demonstrates that what drives our tracking error is consistent through time. This is an indication that there is an investment process at work.
Where we take our risk
Prioritising Stock Selection
As well as being able to point to a consistency in how we apply our process, it's important to show that we’ve been rewarded for our efforts. This chart shows how stock selection has been the main contributor to our total cumulative returns above the benchmark over the last 10 years.
Driver of Alpha