How exclusions shape our investment universe
Exclusions are a quick way to shape our investment universe. Since the exclusions are based on our values or past experience, they do not make us worry that we are missing out on something. Rather, these exclusions help us efficiently find our investment gems.
Twice a year, we engage in a quantitative process we call Screening to narrow down our investment universe. This table is from the Fall 2021 Screening and it shows that our exclusion approach helped us narrow down our investment universe from 98’000 possible tickers (one ticker represents one company) to 43’381 based on our exclusion criteria alone.
Following the sustainability based exclusions, we further narrow down the investment universe with our financial risk management exclusions. Risk based exclusions are for instance limiting the companies’ debt allowance or ensuring sufficient liquidity in the underlying stock. We then rank the remaining stocks utilizing our proprietary financial and sustainability metrics to narrow down the universe to the most promising 50 companies. At this point, we shift the focus from what we exclude to what we prefer to see in a company. Next to an attractive valuation as an example on the financial side, we also screen for values we foster and standards we support on the sustainability side.
The final outcome of our screening is a list of 50 stocks exhibiting our preferred characteristics as far as they are quantitatively measurable. We then proceed to rigorously research them to find new investments.