ABOUT PLATINUM

How we Invest

Platinum is an active manager seeking to deliver absolute returns over the long term.

Platinum’s investment philosophy is centered around the ideas that stock prices are heavily influenced by our cognitive biases and that, from time to time, this can lead to mispricing, particularly where there is temporary uncertainty or long-term change.

Platinum believes these opportunities are more likely found away from the spotlight and that the best decisions will often be uncomfortable, while noting that the price paid for an investment is a key driver of its return.

Our Philosophy Our Investment Approach & Process Responsible Investing Approach Risk Management Short Selling Our Story

INVESTMENT PHILOSOPHY

Our Philosophy

Just as optimism and pessimism ebb and flow in stock markets, similar sentiments affect the share prices of individual companies, causing the price of shares to deviate significantly from their intrinsic worth at times. The temporary divergence between the inherent value of a business and the market’s perception and expectations of it, as reflected in the company’s share price, is the opportunity that we seek to exploit.

What creates these opportunities is investors’ inability to anticipate and fully comprehend change, compounded by such emotional drivers as fear, fashion and greed. While share prices frequently fluctuate in reaction to inconsequential news headlines and overreact to recent events of a salient, though transitory, nature, be they positive or negative, markets rarely respond proportionately to real changes in the intrinsic value of the business. Moreover, the plethora of market ‘noise’, together with the availability bias innate in human beings, causes investors to extrapolate – inferring simplistically that the trend line observed today will continue into tomorrow.

These attributes lead to a general tendency by market participants to chase the next big growth story while neglecting businesses that are facing temporary set-backs or undergoing periods of change and transition. It is at this point of change and consequential doubt that the market is most vulnerable to mispricing a company’s true prospects.
The key to Platinum’s investment approach lies in distinguishing companies with sound businesses that are undergoing creative destruction, from those that are facing fundamental challenges. This requires independent thought and practical business acumen.
Adopting a contrarian approach to investing means that we can periodically face trying times, because there can be a lag – months or years – before the market recognises the intrinsic value of out-of-favour companies. Strong discipline is needed to adhere to the investment thesis and remain unperturbed by market volatility in both good times and bad. We minimise “case drift” by ensuring that each investment is supported by a written report that lays out the investment case in detail. Note, however, it is equally important to recognise when an investment case is not playing out due to altered fundamentals in the business. In the event of a company failing to meet our pre-determined performance milestones, the shares are likely to be sold.

The Ebb & Flow of Markets Diagram

Our Investment Approach and Process

Platinum’s portfolios are built via a process of individual stock selection (“bottom-up”) – this is neither by macro-economic modelling (“top-down”) nor by reference to any index weightings (“benchmarking”).

Platinum applies qualitative and quantitative analyses when selecting stocks. Considerations for each company typically include, but are not limited to:

whether the company’s business is competitive and sustainable;
the quality of the company’s management;
the company’s ownership structure;
whether the company is financially sound; and
the company’s valuation metrics.

Such analyses are augmented by observations and studies of broader socio-political and macro-economic themes and trends.

Platinum’s investment process generally involves the following key elements:

Idea Generation

The Portfolio Managers for the Platinum International Fund and the Platinum Global Fund (Long Only) are supported by a dedicated sector-based research team. The other strategies have their own focused research resources. A shared research platform ensures that all the funds benefit from the research undertaken.

Generation of themes and ideas in Platinum’s investment process is eclectic in nature drawing on a wide range of sources, observations, and market analysis, and benefiting from the cross-pollination of ideas within the team.

The location, organisational structure, range of team meetings and internal infrastructure is designed to foster a collaborative open approach and to facilitate the free flow of information between analysts and Portfolio Managers with different geographic and industry responsibilities. Platinum believes global context is critical.

Quantitative Analysis

Platinum uses a range of quantitative techniques, including proprietary models to drive short-lists of companies for more intense analysis. This is helpful in uncovering companies that are not part of the popular narratives of the day. The quant team run a portfolio of best ideas which demonstrates their conviction to the broader team.

Intensive Research

Having identified a company as a potential investment, it is explored in greater depth, utilising a wide range of resources, which may include material from the company and its competitors, consultation with experts, reports from stockbroking analysts and industry material, and potentially visiting the company, its competitors and its suppliers.

The investment case should highlight why any mispricing exists and what the company is expected to achieve over the intended investment time horizon. Platinum seeks to draw on the broad experience of the investment team to drive debate, reduce the risk of bias and ultimately lead to better investment outcomes.

Each Portfolio Manager is ultimately responsible for their investment decisions.

Portfolio Construction

As a consequence of the investment approach, each Fund’s portfolio will be built‑up from a series of individual stock selections rather than either a pre‑determined asset allocation or with reference to any benchmark index.

At any point in time there will be newly introduced ideas, some that have made an initial contribution and others that are getting closer to maturity. In arriving at portfolio weightings, attention is paid to the relationship between stocks, sectors and geographies.

When undervalued securities cannot be found, Platinum will leave funds in cash. Therefore, after periods when the markets have performed strongly a Fund may hold significant cash positions.

Likewise, when Platinum’s research reveals companies whose prospects are seen as overvalued, Platinum may short sell positions in securities (and indices).

PLATINUM'S STEWARDSHIP

Responsible Investing Approach

At Platinum, we have a core belief that if we responsibly and successfully look after our clients’ money, our business should prosper. With this in mind, we seek to apply a pragmatic approach to both how we run our business, and the expectations we place on the companies in which we invest.

Companies are facing a range of issues from an environmental, societal and governance perspective as the regulation and policy settings surrounding these issues continue to evolve. Platinum’s approach from an investing perspective continues to evolve as we seek to refine and balance our investment approach to these issues with our core philosophy of seeking good medium to long term returns for our clients.

Platinum is a signatory to the UN Principles for Responsible Investment (“UN PRI”) and thereby has made the commitment that “as an institutional investor, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance issues can affect the performance of investment portfolios”¹.

A summary of how we incorporate labour standards, environmental, social, governance and ethical considerations (“ESG”) into our investment decision-making and ownership practices can be found below.

¹as per the UN PRI Signatory Commitment Statement.

Our RI Approach

Risk Management

Risk management is an integral part of good management and corporate governance practice. However, in relation to any investment strategy, an element of risk is inevitable.

Platinum views risk primarily as the prospect of losing Investors’ capital. The greatest risk factor is a Portfolio’s security exposure and we monitor and control this risk through the following channels:

Risk management is core to our stock selection process. As a result of our investment approach, the key risks in a Portfolio are the specific risks associated with each individual stock position. We view specific stock risk as a function of our knowledge base on the company and seek to manage and reduce risk via a process of thorough and in-depth research, detailed scrutiny by the relevant analysts and their peer group as well as ongoing monitoring. Within a Portfolio, care will be taken to avoid excessive exposure to areas that have a high co-variance.

Our index-agnostic approach also contributes to the control of the absolute risk of a Portfolio.
From time to time, we may utilise derivatives to manage risk, such as:
- selling index futures or buying index put options to reduce market risk in a Portfolio; and
- where we have identified stocks that we believe to be overvalued, buying put options over that stock or taking short positions in the stock.

We manage risk associated with currency exposure through the use of derivatives contracts (for example, foreign exchange forwards, swaps, non-deliverable forwards and currency options) and spot foreign exchange trades.

Short Selling

The rationale behind short selling is to profit from a fall in the price of a particular security (e.g. share, index, exchange traded fund). From time to time, Platinum applies an active short selling strategy for a Fund and the level of short selling will differ between the Funds. Platinum may use short selling to reduce a Fund’s net invested position and to take opportunities to increase returns.

Platinum generally utilises equity swaps to short sell. A swap is a derivative contract, in which two parties (counterparties) agree to exchange payments of value (or cash flows) for another. Normally, they are cash settled non‑deliverable contracts (i.e. settled for a profit or loss).

In taking a short position, Platinum expects the asset to depreciate although there is a risk that the asset could appreciate. Unlike a long security, losses can exceed the amount initially invested.

The risks associated with short selling are managed in the same way as the risks associated with holding a long security, that is, thorough research, daily reporting and ongoing monitoring of positions held.

Short Selling Example (loss)

Platinum short sells (via a swap agreement) 10,000 shares of ABC @ $100 and closes the position when the share price rises to $120 by entering into an equal and opposite trade.

Trade	No. of Shares	Share Price	Total Income/Cost ($)
Opening Cell	10,000	100	1,000,000
Borrowing cost and commission			(200)
Interest receivable			250
Closing buy	10,000	120	(1,200,000)
Loss			(199,950)

There will be additional costs and revenues from borrowing costs, commissions and the return of dividends.

Short Selling Example (profit)

Platinum short sells (via a swap agreement) 10,000 shares of ABC @ $100 and closes the position when the share price falls to $80.

Trade	No. of Shares	Share Price	Total Income/Cost ($)
Opening Cell	10,000	100	1,000,000
Borrowing cost and commission			(200)
Interest receivable			250
Closing buy	10,000	80	(800,000)
Profit			200,050

There will be additional costs and revenues from borrowing costs, commissions and the return of dividends.

MEET THE TEAM

Experts Behind Your Investments

Want to meet the experts behind your investments? You can review our team and their credentials on our team page.

See Our Team

Our Story

Platinum is an Australia-based investment manager founded in 1994 that focuses on investing clients’ savings in international shares. Past performance shows that our approach is one that has worked in different economic climates and withstood the test of business cycles for over 30 years.

View Our Story