By Aristotle Capital Management | August 30, 2021
Video description: Aylon Ben-Shlomo, Client Portfolio Manager at Aristotle Capital Management, speaks to why Aristotle’s investment process is different.
Video content: The Aristotle Capital Management logo appears on screen.
Description: A text banner appears stating Aylon Ben-Shlomo, Client Portfolio Manager, CFA. Aylon, in business attire, sits in a room and looks to an interviewer off-screen.
Aylon Ben-Shlomo: This may sound counterintuitive coming from an asset manager but our goal is not to find the next best stock, it's to better understand the businesses within which we invest. What's optically cheap to some may not be a good investment for us. So instead of looking for what's hot at the moment, we focus on what makes a good business, what makes that business unique, what makes our competitive advantages sustainable, by focusing on that first sometimes we find new and interesting investments.
Screens use quantitative data, and typically it's backward looking, which is helpful when understanding what has occurred. But when we're investing our client's capital we're not investing based on what's happened, we're investing based on where we think a company's going.
Description: An illustration appears using a funnel to represent a typical fund manager investment process, showing some businesses filtering through. A second illustration then appears, showing how Aristotle’s investment process connects seemingly unrelated parts of company’s value chain to other companies. This illustration shows a simplified representation of how competitors, suppliers, partners and customers can be related in ways that might be easily missed.
Aylon Ben-Shlomo: And so if you're using a screen to focus on backward looking data, you may miss the future. You may miss the transformation. You may miss the catalyst that we see in our investment process. So importantly, we do not use screens because we view them as exclusionary and backward looking. But instead by focusing on businesses first and what makes that business unique, we can understand and perhaps see the transformation that's going on in a business and where the value will be created in the future.
We are not trading stocks, we're not trading pieces of paper. Some people do that and that's perfectly fine for them. But what we do is invest in businesses. And so first and foremost, we need to understand what a company does, what makes them unique, why they earn their returns, why they earn their cash flows and why they'll be able to sustain going forward. What our goal is, what our intention is every day is to come to work and better understand the businesses that we currently own. Now that doesn't mean myopically focused on just the 40 or so holdings that we have in the portfolio, but it's understanding their entire value chain, understanding why a supplier is able to do business with a given company. And so by doing that, by understanding all the different levels in a value chain and understanding where the profits are accruing and where they may accrue in the future, we then better understand the businesses we invest. And through that, sometimes, sometimes we find new investment ideas that are in those value chains. What we do differently is look for good businesses, we're not looking for cheap stocks.
Description: The Aristotle Capital Management logo appears.
Meet Aylon Ben-Shlomo, Client Portfolio Manager with Aristotle Capital Management. In this short clip, Aylon highlights why Aristotle’s investment process is fundamentally different than many fund managers. “Our goal is not to find the next best stock, it’s to better understand the businesses in which we invest,” he says. Rather than paying attention to what others are excited about in any given moment, Aristotle focuses on what makes the business they invest in unique, with sustainable competitive advantages.
This focus is why they don’t use screens in their investment process, which, he says, are often exclusionary and backward looking. Instead, they look to understand the entire value chain surrounding each holding in their portfolio. Originally introduced by Harvard Business School professor Michael E. Porter, the concept of the value chain is used to facilitate a deeper understanding of a company by unpacking how each activity, from inbound logistics to customer service, adds value and supports its competitive advantage. By focusing on high-quality businesses with sustainable competitive advantages and a narrower range of outcomes, volatility is lessened. Clients can take advantage of this approach with the Canada Life™ Pathways US Concentrated Equity Fund (mutual fund) and Pathways US Concentrated Equity (segregated fund).
The views expressed in this commentary are those of this fund manager as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice.
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