In it investment world Where risks are very present, quality is the best refuge for investors committed to the long term. Investing in quality companies involves following a disciplined investment process of selection and analysis where managers identify assets that not only preserve capital, but also generate sustainable cash flows over timewith the capacity to reinvest with high returns on capital and in addition their businesses are growing and have the potential to continue growing. Historically, companies based on quality have had greater development and evolution than companies not differentiated by it. In the following graph, you can see how the same index of the more than 1,000 most relevant companies in the world (MSCI World), and in the last 20 years, those classified as Quality.
To invest in fixed income assets, it is best to follow a process where the origin begins with a thorough and dynamic analysis of the macroeconomic conditions that affect the investment universe. I am referring more specifically to the analysis of the slopes of the most relevant interest rate curves. This analysis is crucial for the process of investing in long-term funds, since the choice of assets and the active management of the duration of a diversified portfolio, composed of multiple currencies and positions distributed along yield curves, play an essential role in generating future returns. Furthermore, the use of a structured methodology designed to maximize security, predictability of income flows and risk-adjusted performance results in highly credit-rated securities, such as sovereign and corporate bonds from robust and highly reliable issuers. The correct weighting of these issuers is always the basis on which above-average returns are obtained. He alpha generation process with a correct specific choice of bonds in the portfolio comes from an analysis of the financial metrics of each issuing company, the structure of its capital, the priority of that debt and the liquidity of each issue along with a filter on the matter. of ESG.
Many quality companies where we invest in equities stand out for having very competitive advantages. Among these, we can highlight the strength of its markwhich allows recurring prices to be set above the competition. Hermès is a clear example of this, this renowned luxury fashion company has taken great care and enhanced its brand during its existence, going so far as to make the most expensive bag in the world, the famous “Diamond Himalaya Birkin”. The effect of switching costwhere these companies have a great power to retain their products, there are companies that sell a product or service that is very difficult to replace and ends up becoming indispensable for their clients, a clear example is the company Autodesk; This is your AutoCAD product; a computer-aided design software used to accurately draw, design and model in 2D and 3D with solids, surfaces and others. The patentsthese allow companies to use and commercially exploit a product while preventing other third parties from using it without consent. They are, in short, an exclusive right granted by a government to an inventor to protect an invention, allowing him to control and exploit it commercially for a limited period. Novo Nordisk is an example of this, it is a leading pharmaceutical company in the insulin and diabetes care segment. He red effectis a factor that allows companies to increase the value of a certain service or service as the number of users who use it increases. The Airbnb platform, is a digital platform dedicated to offering accommodation between individuals, offers a double solution, a wide range of accommodation for people looking to rent and a large customer base for those owners who have accommodation. The licensesare a permit granted by a regulatory entity for the exploitation of an economic activity.
Amazon has received multiple licenses and permits from various regulatory entities to operate in different sectors. In the area of pharmaceutical distribution, Amazon obtained the drug distributor license from the FDA (U.S. Food and Drug Administration) to sell certain pharmaceutical products through its platform. This license allows Amazon to expand its economic activity in the health and pharmaceutical market, complying with strict regulations on safety and control of medicines. His location; Some companies have assets located in key locations that allow them to reduce their costs, which means offering more attractive prices to their clients. Ryanair is a company dedicated to the air transportation of people. This company has exclusive agreements with low-cost secondary airports. Its location is the key, airports in Europe that are less congested and have the lowest rates; All of this significantly reduces costs, allowing tickets at low prices. The business management processes; There are companies that have unique business models that are difficult to replicate with which they obtain better results than their competition. The Nvidia company is a leading company in graphics processing units (GPU) for video games, artificial intelligence and data centers. Its dominance in the gaming graphics card market and the creation of high-quality digital content is a key pillar of its success, cementing its position as a leader in technological innovation and establishing a barrier to entry for competitors in the industry. In addition, it stands out for its innovation in the field of artificial intelligence with its GPUs used in neural networks and machine learning. Develops platforms such as CUDA to facilitate parallel processing in scientific and AI applications.
Lastly, the economies of scale; the ability of a company to produce a greater quantity of products at a lower cost. Some companies manage to reach a critical size beyond which it is very difficult to compete with them on price. Fixed costs are greatly diluted and allow you to offer your customers lower prices than your competitors. It is especially powerful when combined with other competitive advantages. Walmart is a company within the retail industry. The company negotiates exceptionally low prices with suppliers thanks to its massive purchasing volumes. Its advanced logistics system minimizes transportation and storage costs. The result is their ability to offer products at consistently lower prices than other retailers.
We analyze in depth various aspects such as valuation ratios, profit estimate, sales and business lines estimate, as well as the Free Cash Flow for the next 3 years. From here we obtain an estimate of the potential revaluation of the companies. If we also add the analysis reports of the best independent houses worldwide, it makes it even easier for us to better understand the business models. Refining our estimates and having more direct access to the management of these companies is of great importance to us, since companies that do not have excellent governance are rigorously excluded from our investment universe.
Investment in quality is the backbone of our work, we seek excellence in our investments. We take an approach based on capital growth under strict risk control.