Value Investing

At Trapeze Asset Management Inc., our investment process begins with general market and macroeconomic analysis, though we follow a disciplined, bottom-up approach which emphasizes security selection backed by our fundamental research.

Our strong macro views of the economy and markets influence our asset and sector allocations. We construct our diversified portfolios through the selection of individual securities which meet our value criteria. We tend to be contrarians, investing in temporarily out-of-favour, undervalued companies that are either misunderstood or under-followed. We patiently accumulate a basket of these securities trading below our estimates of their intrinsic values and wait until the market realizes their true value and prices them accordingly. Equity portfolios can be invested long-only or Long/Short with short sales of overvalued securities trading at a premium to their fair market values.

Investment ideas are generated through independent, in-house research on a universe of U.S. and Canadian securities. We cull stocks utilizing information gleaned from quantitative screening, research from brokerage and independent analysts, newspapers and periodicals, and our diverse client and business contacts. Specialized research we use includes a service which highlights the sell-side analysts with the best track records, another which conducts forensic accounting to flush out companies with deteriorating fundamentals, and one which flags companies with unusual insider buying or selling.

We search for value through our main fundamental criteria, which include:

- Efficient balance sheet (i.e., optimal use of debt)
- Growth in earnings and free cash flow
- Strong management team
- Competitive market position
- Trading at a low price relative to our appraised value
- Potential catalysts to realize shareholder value

We scrutinize our investments as though we are entrepreneurs, prepared to own the entire business. Once we determine that an investment meets our criteria, we utilize our exclusively licensed Structural Valuation Analysis (SVA™) methodology.

We use leverage from time to time for our clients who are prepared to take on margin debt, opportunistically, where we perceive the market to be bottoming.