Stock Selection Process
- Our stock selection process combines multiple proprietary tools with rigorous fundamental analysis to determine final portfolio constituents.
- A multi-stage process systematically reduces the investable universe from ~18,000 names globally to ~500 candidates, from which ~250 companies are selected to populate the active portfolios.
Step 1 - Market Capitalization Screen:
We utilize different databases for real-time market intelligence on ~18,000 listed companies worldwide. Stocks with insufficient market capitalizations are eliminated, reducing the investable universe to ~4,000 names.
Step 2 - Country-specific Screens:
Since more than 20 years we isolate the key fundamental performance driving factors. These factors are combined into country-specific and global multi-factor models. Examples of factors that are evaluated include:
- classic valuation factors:
price/earnings, price/book, price/cash flow, dividend yield, etc.
- value spread factors:
earnings/cost of capital, core profitability, etc.
- growth-oriented factors:
change in sales, free cash flow, core profitability, etc.
- behavioral finance factors:
contra indicators, Hagins Torpedo Model, etc.
The final country-specific factor combinations may have significant differences between them, but each ensures that the portfolio shares common value characteristics.
Step 3 - Determination of Buy Candidates:
Each stock within the invatable universe is now ranked globally as well as within each country using the derived multi-factor models.
During that process each stock gets ranked for every factor included in the model (Rank 1-100). The single factor-rankings of a stock are then combined to an overall country-specific respectively global CHICCO Ranking.
Following this process country-specific and global CHICCO Rankings are generated. Only the first quintile stocks of these rankings, i.e. the Top 20%, qualify for the fundamental analysis and form the list of buy candidates.
Step 4 - Fundamental Analysis:
Buy candidates ranked by CHICCO in the first quintile (percentiles 1 to 20) of the respective screen are subjected to a plausibility check as well as an additional fundamental analysis by the portfolio management team.
Portfolio candidates are scrutinized and assessed on multiple fronts, including:
- Check for Data Errors - Verification of relevant factors, cross checks, strengthening of database.
- Review of Factor Causation - Suitability of factors for respective company / sector. Suitability within currenct cycle of Company / sector and one-time events.
- Check for inconclusive signals / new situations - Exploring contradicting signals, volatile factors, paradigm shifts and obsolete business models.
- "Common Sense" Bewertung - Conducting peer group comparison, check for stability and sufficient history of fundamental data, checking for valuation in historical context.
- Value traps - Reviewing trends in margins, CFROIs, financial stability, payout ratio dividend coverage and DCF upside potential.
After successfully passing all qualitative steps the respective stocks are added to the global buy list.