RESEARCH PROCESS

Bottom-up fundamental global research provides perspective. We travel worldwide to uncover companies that may continue to grow in volatile macro-economic conditions.

Since country and industry factors have influences on security prices, we employ a proprietary multi-factor global valuation model that produces a ranking of countries from the most undervalued to the most overvalued. It is a useful cross check on the company valuation screens and has also been a good indicator of an overheating equity market. The model informs but does not direct the investment process.

Additionally, normal security price fluctuations can undervalue the cash flow or assets of a company. Using a series of global valuation criteria, our research team regularly screens a database of 40,000+ companies to produce a list of approximately 500 to 2,000 companies worldwide that appear to be the most undervalued. Screen criteria include the valuation of a company’s sustainable free cash flow relative to POLARIS’ GLOBAL COST OF EQUITY, financial strength, market capitalization and liquidity, and margins.

Our professionals base their global valuation assessments off of a unique required rate of return or discount rate, known as POLARIS’ GLOBAL COST OF EQUITY. This metric includes the long-term average return for global equity markets plus an active management premium plus a country risk premium. The investment professionals apply the discount rate to highly conservative estimates of future cash flows to determine the fair value of the investment.

Bottom-up fundamental research comprises the vast majority of time we spend in the investment process. We consider individual stock selection paramount to the process, and the primary contributor to performance. Fundamental global research covers financial analyses of companies including: in-depth review of financial statements, research on suppliers, customers and competitors and meetings with company management. Our analysts travel the world, assessing industry conditions, competitive advantages, profitability, operating and financial leverage and the quality of management — in an effort to identify new companies that will enhance the performance of our global portfolios.

We are able to dedicate substantial resources to investment decision making (based on our global valuation process and subsequent bottom-up research) due to our extensive use of technology, ultimately leveraging the time of our investment professionals. The proprietary intellectual property and technology we utilize in our investment process has been developed and continuously improved for more than 30 years. It is designed to automate repetitive and lengthy calculations and algorithms with speed and accuracy.

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