INVESTMENT PROCESS
A highly integrated investment approach
The Fund employs a high conviction, long-term investment strategy while providing daily liquidity to our clients, who seek to gain exposure to medtech's resilient growth.
Cordis’ sustainable competitive advantage in the field of medtech investing comes from our Medical Advisory Panel of world-renowned practising clinical physicians. These thought leaders provide us with built-for-purpose medtech insights to narrow down an investible universe of ~1,000 publicly listed medtech companies to our researchable shortlist of those which we believe have paradigm shifting technologies and long runways of growth ahead. These inimitable insights are our key competitive advantage when investing in the highly technical and complex medtech sector. Because our Medical Advisory Panel is a part of the team, rather than a resource-for-hire, we build on these insights in a cyclical rather than linear fashion, allowing us to build medical conviction earlier and faster than our peers.
We then overlay rigorous financial analysis to invest in the businesses that best harness the secular tailwinds on offer and are almost certain to have greater earnings power over the course of many business cycles. We construct the portfolio without reference to a benchmark and are geographically and market cap agnostic. To better assess different life-cycle companies, we categorise our research list into one of three buckets: earnings compounders, high growth and emerging opportunities.
- Earnings compounders – businesses that are highly profitable and we expect to compound earnings at double-digit rates over many years.
- High growth – businesses with disruptive medical technology that we expect to generate better than mid-teens revenue growth. These businesses may not yet be profitable, but we believe can be highly profitable within 1-3 years.
- Emerging opportunities – businesses that are currently rolling out a new treatment paradigm that we expect to become standard of care over the course of the next business cycle.
Our research process takes a ‘quality first, valuation second’ approach. If a company does not fit our definition of quality, we will not include it in the portfolio regardless of valuation. When evaluating the quality of a business we assess five key criteria: device technology, industry structure, management, profitability and balance sheet strength. These quality metrics are then recorded on the Cordis Scorecard, which allows judicious comparison between the companies on the research list. For the companies that pass our strict definition of quality, we then calculate a valuation range with our own internal models, aided by external research, which largely determines the allocation within the portfolio. When valuing a business, we focus on cashflows, not accounting earnings, because a business is really only as valuable as the cashflows that an owner can take out of it. Acknowledging that valuation is as much art as it is science, we remain focussed on investing with as much margin as safety as possible.
Through this approach, we strive to own 20-30 high quality businesses which we believe are primed to outperform over the long-term.