Evidente's long only model portfolio is a high conviction, concentrated portfolio with no more than 30 stocks and an active share of no less than 30%. The key macro theme that guides portfolio construction is the prospect that interest rates will remain low in Australia and globally for an extended period, thanks to the substantial reduction in the value of human capital. The model portfolio therefore has a strong defensive bias despite stretched valuations, notably stocks that rank strongly on Evidente’s proprietary model of earnings certainty. An overweight bet in discretionary retailers represents the key cyclical exposure. The key bottom up criterion used in stock selection is a high internal rate of return (IRR), which is backed out using a dividend discount model. Stocks that have the highest IRRs and make the cut include: Wesfarmers, Bluescope Steel, and Caltex. The link provides an executive summary of the full text report, which is available to clients of Evidente. (VIEW LINK)
Well done Sam, look forward to following the portfolio's progress.
Interesting stuff Sam. Out of curiosity, what is the thinking behind using the dividend discount model over CAPM?