Idea Generation - AMI Asset Management generates investment ideas from a variety of sources such as screens, industry conferences, and third-party research. However, AMI believes the best ideas often arise from speaking with the users and customers of a product or service, conversations with company management and industry experts (e.g. doctors), and through “feet on the street” research (e.g., walking grocery store aisles).
Recurring Revenue - Uncovering whether a firm’s revenue is primarily recurring in nature cannot be completed through running screens. An investigation of the firm’s income statement is required. At least 50% of a firm’s revenue must come from recurring sources. Due to the recurring revenue requirement, the strategies’ holdings tend to be high quality and exhibit less cyclicality.
Fundamental Research - Once a candidate is identified, it is subjected to a rigorous due diligence process that examines its product portfolio, industry and competitive dynamics, and fundamental metrics, among other factors. AMI is a fully bottom-up manager which looks for companies with consistent recurring revenue, sustainable growth prospects, strong cash flow, and healthy balance sheets.
Valuation - AMI places a heavy emphasis on valuation. The team’s goal is to uncover quality, growing companies that can be bought at a discount to their intrinsic value, allowing for alpha generation over the long run. The research team determines a firm's intrinsic value through a combination of discounted free cash flow valuation and earnings multiple analysis. AMI utilizes a DCF model to obtain an initial intrinsic value and then compares this to historical and peer P/E and PEG ratios. The research team views a security with at least a 10% discount to its value as a candidate for the portfolio.
Downside Protection - AMI focuses on sectors in which recurring revenue is most easily found (Consumer Staples & Healthcare). Due to the defensive nature of these sectors, and the lower volatility of the names in which the firm invests, each portfolio exhibits a low downside capture ratio as compared to its benchmark.