GLG Absolute Value

The GLG Absolute Value strategy has a long-short equity approach that aims to generate absolute returns on a rolling three-year basis by employing a repeatable value based process on lesser researched parts of the UK mid-cap market.
  • Targets 8%1 returns p.a. from absolute-value based ideas
  • Managed by Jack Barrat, who has over nine years of investment experience and is the co-manager of the GLG Undervalued Assets Strategy
  • Process seeks to identify:
    • Companies with assets or returns that are significantly undervalued by the market
    • Stocks that are overvalued, with returns and outlook that are deteriorating
  • Strict rules for position sizing, portfolio construction and risk management are implemented
  • Jack’s Absolute Value strategy has generated strong risk adjusted returns2 within GLG’s Alpha Select Strategy

Approach

The Strategy employs an absolute value framework developed by the team over the past ten years. It models companies in the UK market in terms of the value of their tangible assets and the return they make on that tangible asset base (‘EVA’ analysis).

Within the long book, the team seeks to identify companies trading below their estimation of replacement cost (‘Undervalued Assets’) or whose profit streams are undervalued (‘Undervalued Returns’). The key safety checks on these companies are cash generation and positive earnings momentum analysis.

For the short book, the team looks for companies trading at a multiple of their tangible asset base that they believe is not justified by the returns they are making (‘Overvalued Assets’). They will also seek companies that are cheap, based on their returns, but with falling incremental profits, estimate downgrades and excessive cash consumption (‘Overvalued Value Traps’).

The team undertakes further fundamental analysis and bespoke modelling on companies that meet the above criteria to construct a high conviction portfolio of 50-70 stocks, expected to be split equally between long and short positions.

 
Approach Alternative
Asset Class Equity
Geographic Focus UK

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