Our portfolio construction process combines our insights about economic conditions and broader investment themes with our analysis of individual securities. We use a proprietary, integrated research and monitoring process that leverages our years of experience and application, as well as long-standing principles and current academic research. This process is applied to all of our strategies, within the specific parameters of each investment strategy.
We believe that it is impossible to manage returns, but only the risk taken to achieve results. Accordingly, risk management integrated fully throughout all aspects of our investment approach. Through active management, we believe we can help guard against unforeseen events and the potential risks of an unpredictable market.
Top-Down Insights Provide Overarching Perspective
Our investment process incorporates a top-down analysis of the global macroeconomic environment, sectors and (as appropriate) regions and countries. We also identify long-term secular themes that we believe will influence opportunities for decades to come. Our experience has shown that these secular themes provide a powerful tailwind to select companies, particularly during periods of slower economic growth and less hospitable business environments. Our chief investment officers, drawing upon the insights of our senior strategy analysts, define the top-down themes and macro views that guide our portfolio construction process.
Comprehensive Security Research
Our top-down analysis is paired with our comprehensive security research. We first determine the intrinsic value of the company, and then utilize quantitative and qualitative inputs to value the various securities within its capital structure. We believe the thorough understanding of a company from both a debt and equity security perspective allows us to gain a truer understanding of a company's potential—and its risks. (Please refer to previous page for additional details.) Security analysis is carried out by our research team, with ongoing participation from our co-chief investment officers.
As in our top-down analysis and security research, risk management remains a principal consideration in our construction process. Portfolio construction guidelines are established at the highest level, by our chief investment officers.
Before we invest, we consider the security's impact on the portfolio's industry and sector allocation ensuring that the intended diversification is maintained across themes and sectors. We also structure the portfolio to reference our thematic emphases. Our construction process considers the following: position size (generally not exceeding 5% at the company level), sector and industry weightings, region and country weightings, and cash allocation (typically 0-5%, as we generally remain fully invested).
Many members of our team monitor each portfolio on an ongoing basis, including our research analysts, traders and dedicated risk oversight team. Monitoring and risk supervision includes scenario, risk/reward, attribution and liquidity analysis, as well as the careful tracking of portfolio characteristics.
Investment candidates emerge from the intersection of top-down and bottom-up analysis. These securities are vetted more extensively within the context of the overall portfolio. Continual monitoring and risk management analysis ensure that each portfolio maintains appropriate diversification and risk/reward characteristics.