Quality-Value Investing
We employ a quality-value investment approach to preserve and grow our clients’ capital over the long term. Quality-value investing is based on investing in great companies when we can buy them for less than they are worth and holding them for the long term.
Our investment philosophy guides us to:
- Focus on research - Intensive research into individual companies and their management is the critical process that supports our investment decisions
- Remain patient - We take a long-term view because it takes time for the quality and value of our companies to be realized by the market
- Invest globally - We invest in quality companies across the capitalization spectrum, wherever they may be found in the world
Research & Patience
The value of an investment opportunity comes from the quality of a company’s business and the price we are willing to pay for it.
We start by narrowing the vast global investment universe to a subset of companies that have characteristics of quality, and those that fit within our “circle of competence” – the companies and industries that we have the ability to understand thoroughly.
We combine quantitative and qualitative research, along with experience and human judgment, to assess each company’s business characteristics, financial position and management team. This, together with rigorous valuation analysis, results in an estimate of what we believe the company is worth, also known as the intrinsic value.
1. Quality Investment Universe
2. Research Methodology
Qualitative Research
- Interview management teams
- Conduct site visits and other on-the-ground research
- Interview customers and industry experts
Quantitative Research
- Analyze financial statements
- Screen for quality and value characteristics
- Perform discounted cash flow analysis and other valuation techniques
- Identify and forecast key operating metrics
- Test balance sheet strength
3. QUALITY CRITERIA – WHAT WE LOOK FOR
Business Characteristics
- Barriers to entry
- Limited competition
- Economic resilience
- Industry leadership
Management
- Capable, honest management
- Excellent capital allocation record
- Equity ownership
- Good corporate governance
Financial Attributes
- Growth in free cash flow
- Low capital requirements
- Good return on invested capital
- Strong balance sheet
4. VALUATION ASSESSMENT
Intrinsic value calculation: our estimate of a company’s true value5. CONCENTRATED INVESTMENT PORTFOLIOS
Approximately 25-40 holdings per regional geographyWe compare our assessment of a company’s intrinsic value to the price at which it is available in the market. We remain patient, investing in a company when its market price is significantly lower than its intrinsic value.
The greater the difference between a company’s market price and its intrinsic value, the greater the margin of safety. Investing with a margin of safety helps to protect and grow capital over time. Ultimately, over the long term, we expect a company’s market price to align with our estimate of its intrinsic value.
The types of companies we seek have a history of increasing their intrinsic values as they continuously improve and grow their business. We look to invest in companies that never close that gap between price and value. Investing in these types of businesses will drive most of the value creation for shareholders over time.
One Equity Approach, Applied Globally
Our Chief Investment Officer oversees seven equity teams with specialized investment expertise in Canada, the U.S., Europe, Asia and Emerging Markets.
The structure of our teams empowers the people with the deepest experience to make decisions. Each equity team is led by a single Portfolio Manager who has full accountability and autonomy over the team’s mandate, within the limits of Burgundy’s investment philosophy and the guidelines set by our Chief Investment Officer.
Portfolio managers, together with the dedicated and experienced analysts who support them, spend their time building a deep understanding of the investment opportunities within their geographic mandates. The combination of senior established investment managers with like-minded analysts encourages collaboration, stability and succession within each equity team.
Working from our hub in Toronto, Canada, our Investment Team’s research includes frequent travel to gain first-hand knowledge of companies and their management teams. We choose to dedicate resources to travel because we believe it leads to deeper insights about the companies we invest in. This combination of on-the ground experience and a localized team allows us to create a truly global perspective.
Our Fixed Income Approach
Our Chief Investment Officer oversees the fixed income team led by Vincent Hunt, Vice President and Portfolio Manager, who has full accountability and autonomy over the team’s mandate, within the limits of Burgundy’s investment philosophy and the guidelines set by our Chief Investment Officer.
Similar to equities, our approach to fixed income investing is based on rigorous fundamental analysis. We thoroughly analyze financial and business risks, management quality and capital structure to assess a corporation’s ability to meet its debt obligations. Combined with our assessment of relative value, based on incremental yield, we invest in fixed income securities that offer the most attractive risk-reward proposition.
Evaluate Company’s Ability to Service Debt
Business Characteristics
- Industry dynamics
- Barriers to entry
Management
- Capable, honest management
- Alignment of interests
- Attitude towards capital allocation
Financial Attributes
- Level and profile of debt
- Stability of cash flow
- Bondholder protection (covenants)
Determine if Incremental Yield Compensates for Risk of Default
Capital preservation is paramount in our approach to fixed income investing. We invest in corporate bonds when our fundamental analysis combined with our relative value assessment demonstrate that our clients will be compensated for the inherent risks.
Our Approach to ESG
We believe that truly outstanding business leaders are acutely aware of the environment, social, and governance (ESG) factors which materially impact their businesses. Consideration of these factors is an important part of Burgundy’s long-term view.
Burgundy’s disciplined and bottom-up approach allows ESG factors to be evaluated at the onset of the investment process. We integrate them into our investment research and assess whether they have the potential to impact the value of our investment. These include:
Environmental Factors
We seek companies that are open-minded on the subject of climate change, sparing with their use of resources and horrified by waste. A culture of strict compliance with laws and regulations is essential.
Social Factors
We seek companies that exhibit a culture of due process, honest dealing and fairness, and display awareness of social obligation in the communities in which they operate. These factors will ensure that social issues that do arise will be dealt with expeditiously.
Governance Factors
We seek well-managed companies with strong, focused governance processes. We do not engage with companies whose governance practices are deficient, whose compensation policies are excessive and whose management incentives are flawed.
This approach to ESG has been at the core of our investment process since the firm was founded but has become more formalized in recent years and accentuated through the provision of training and tools on ESG-related issues and risks.
Across the firm, Burgundy’s distinct investment philosophy and investment process includes a single approach to ESG, which is deeply integrated into our investment strategy. Our investment process is centred on rigorous due diligence of the companies that we evaluate and includes engagement with company management and with the company’s customers, competitors, and suppliers. As part of the research and diligence process, we will consider ESG-related issues (if appropriate) and how those issues might impact the outlook for the company being evaluated, as well as the company’s intrinsic value.
AFFILIATION WITH PROFESSIONAL INDUSTRY BODIES
Canadian Coalition for Good Governance (CCGG)
Burgundy is a founding member of CCGG, which is a corporate governance organization in Canada that represents the interest of institutional investors. CCGG promotes good governance practices in Canadian public companies and the improvement of the regulatory environment to best align the interests of boards and management with those of their shareholders, and to promote the efficiency and effectiveness of the Canadian capital markets.
In 2020, Burgundy endorsed the CCGG Stewardship Principles. The CCGG’s seven principles are intended to help investors be active and effective stewards of their investments.
United Nations-supported Principles for Responsible Investment (UN PRI)
In 2019, Burgundy became a signatory of the United Nations-supported Principles for Responsible Investment. The UN PRI is a network of international investors working to incorporate ESG factors into investment and ownership decisions. The UN PRI has six principles and in implementing them, signatories contribute to developing a more sustainable global financial system.
SOCIALLY RESPONSIBLE INVESTING (SRI)
The terms ESG and SRI are often used interchangeably, however, they are two different concepts.
As discussed above, ESG is about integrating environmental, social and governance risks into our decision making, with a focus on how they may impact the performance of the investment. Broadly speaking it is more focused on the operation of the company and its financial performance.
Socially responsible investing (SRI) is about incorporating ethical and social concerns into portfolio management. This goes one step further than ESG by selecting (or eliminating) certain investments according to specific ethical guidelines. While Burgundy has dedicated SRI investment strategies, we can also manage many of our other portfolios with SRI considerations.
ADDITIONAL RESOURCES
For more information on ESG, SRI, and other items related to our approach, please review the following:
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