Process-driven long-term investing
Selecting the right companies and profiting from their long-term value creation is our key performance driver, as the share price of a company follows earnings per share growth over the long term.
We focus on business quality, growth prospects, and sustainability to identify the few companies that qualify as “2X” ideas. Our ambition at 2Xideas is to optimally combine the art of stock selection with the science of risk management in order to generate sustainable long-term outperformance for our investors.
We employ advanced quantitative models in combination with qualitative input from our sector
analysts to constantly screen our Universe of around 5,000 listed mid & large cap companies. In order to navigate this ever-changing landscape, we have developed a proprietary software platform that enables the identification, tracking, and processing of investment ideas. In addition, we regularly perform comparative studies across entire industries to identify trends and changes in the competitive environment.
We believe that the verification of an investment idea cannot be left to quantitative systems as too much of the relevant information is unstructured and its interpretation requires a great deal of human intuition and experience. Nevertheless, structure and discipline play a large role in our idea verification processes as we strive for repeatable outcomes.
Stock Selection is an Art, but one in which the chances of success can be significantly improved by creating superior tools and diligently following a process. From offices in Zurich, New York, and Hong Kong, we perform rigorous fundamental research on companies where we believe there is a 2X return potential. We combine information gathered through financial analysis, management meetings, expert interviews, forensic studies, and alternative data sets into a holistic 4M Analysis (Macro, Market, Moat, Management) that allows us to compare companies across industries and countries.
We look for companies whose success is not overly dependent on volatile and unpredictable Macro factors. We are wary of highly cyclical businesses and exclude companies whose revenues are directly linked to commodity prices, that can be strongly affected by regulatory or political interference, or that are significantly exposed to transitional and physical environmental risks. Ideally, the companies can profit from a structural tailwind and have the potential to grow revenues well ahead of global GDP.
The Market has to offer a visible runway for growth. On the company level we look for market leaders that consistently strengthen their positions while generating above-average returns on invested capital. We like companies whose products are differentiated, enabling them to achieve a price premium, and those with recurring revenues and high customer switching costs.
We look for companies with a strong Moat that allows them to protect their market position. Potential moats include: economies of scale and scope, a sustainable lead in asset, process or technology, network effects, brand, culture, or licenses and patents.
We only consider companies with a Management team combining competence and integrity. We prefer management teams with a proven track record in capital allocation and transparent shareholder communication. Management should adhere to high social and corporate governance standards, including remuneration policies aligned with shareholders’ interests.
Building a great investment portfolio requires more than just investing in great companies.
Risk management is a Science that can dramatically increase long-term compounding rates for investors. We collect unbiased input from each of our specialized investment professionals and combine it with data from our proprietary risk factor model. This systematic fusion of qualitative and quantitative information enables us to construct risk-optimized portfolios that are immune to behavioral biases.
Investing with a long-term horizon enables us to be a strong partner for our investee companies. We constructively engage with boards and management teams and execute our voting rights in accordance with our long-term vision for the company. Working with industry and sustainability experts, we provide input on strengthening corporate governance and improving financial and non-financial disclosure.
We encourage companies to communicate transparently on material ESG exposures, set targets, and report accordingly, preferably along the standard reporting frameworks such as SASB and TCFD. We put particular emphasis on transparent Scope 1-2-3 CO2 emissions reporting and principle adverse impacts data.
We strongly believe that transparency is a prerequisite for long-term investment success.
We use the detailed information that our proprietary systems gather at each step of our investment process to drive a rigorous feedback loop that enables us to constantly improve.
We offer unrivaled transparency to our investors by sharing our deep-dive Investment Cases, our comprehensive Industry Insights, and detailed information on all investment decisions. This level of transparency enables our investors to stay invested even during difficult market periods, which is crucial to profit from the power of long-term compounding.