Australian Equities Growth

The 2,000+ companies listed on the Australian Securities Exchange can be divided into categories defined by the Global Industry Classification Standard (GICS). There are 11 sectors in the first level of the GICS hierarchy, these are; Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Utilities and Real Estate. Each company is assigned to the GICS sector that best defines its business. 

Like the GICS sectors, companies can be categorised into different 'style' buckets using a variety of metrics, such as earnings growth, price-to-earnings multiple and dividend yield.

Investors may include a style bias in their security selection process, choosing companies with particular qualities they believe will prove more attractive over time. Major investment styles include growth, value, quality, momentum and income.

In short, growth investors focus on capital appreciation and attempt to identify companies that will grow their earnings over time and at a faster rate than their peers or the overall economy.

Growth companies typically have a differentiated product or service that can disrupt their respective industry. These companies generally exhibit high returns on capital that is above their cost of capital. This fosters a preference to reinvest firm earnings into additional growth opportunities, rather than pay dividends to shareholders, which in turn drives share price appreciation. 

We employ a fundamental, bottom-up analytical framework to assess the investment universe. To identify growth companies, we seek to determine which companies are currently earning a higher return on invested capital (ROIC) than the industry median or, if they are under-earning, have the potential to increase their ROIC.

We believe that industry dynamics are one of the major determinants of company profitability and ROIC. Through in-depth stock research and hands-on engagement, we seek to identify a company’s competitive position within their industry with respect to cost leadership, product differentiation, and qualitative analysis of company specific factors, such as management and strategy.

This industry analysis enables us to understand how a company is able to generate returns on investment capital above their industry median and if it is sustainable.