A disciplined & elegant approach

Our Philosophy

We take the opposite approach to the current momentum investment expectations gripping the public in today’s market. KETURI’s disciplined, elegant calculations and decisions guide our fundamental investment process. We focus on the ability of the underlying investment to consistently have what we refer to as Value Differential.

Consistent high levels of business performance, managed and monitored for a long period of time, gets us to an inflection point where compounding accelerates. At this crucial point, creation of wealth is magnified. Without consistent Value Differential, we believe it is nearly impossible to truly benefit from compounding, especially in taxable accounts. Time and consistent value creation are both necessary for the concept of compounding to work its magic, and at KETURI, we strive for exactly that.

We focus on the future, for those who fail to look forward get left behind.

Within our investment universe of companies, we expect upward top-line revenue trends, operational leverage, significant pre-tax margins, and aware and capable management. Additionally, operational cash must be at a level to influence future growth, balance sheet strength, share buybacks and/or mergers and acquisitions; and if appropriate, increasing dividends. We pay close attention to cash flow – how cash is currently allocated and how it will be likely allocated over the next 10 years.

Balance sheets indicate a degree of financial safety, while debt capacity can be a source of capital for growth. This data points to a business’s ability to generate consistent returns in excess of cost of capital, in turn, ensuring the creation of shareholder value. When this differential is absent, value is destroyed.

KETURI’s fundamental investment philosophy encompasses a valuation reference point for each security assuring we pay a fair price or lower. In our analysis, our baseline expectation is a return of 7.5% per annum after tax, effectively doubling assets every 10 years. Returns fluctuate and we cannot assure the timing or the eventuality of minimum returns, but our work is supportive. Ideally, the returns in the long run will parallel business value creation. For nearly all our considered companies’, the business performance expectations and earnings per share growth are notably higher than 7.5% per annum.

 

A new way to measure success

We measure our progress on two levels:

  1. Are the companies in which we are invested trending the growth and generating cash and profit as we expect?

  2. Is the value creation in our client portfolios tracking toward their objectives?

We purposefully do not make investment decisions simply to track indexes. We feel these indexes are constructs requiring positions that may not necessarily meet our quality, risk, and long-term performance standards. The performance of indexes is often decided by how large market weighted positions perform, regardless of investment opportunities. Index managers and those active managers who track indexes must be invested in these big positions to see any success. Many times, those tracking indexes, including many mutual funds and ETFs, make decisions to meet or beat the indexes with minimum regard of the tax impact.

Our approach favors separate accounts managed specifically to meet or exceed each client’s objectives, not track an index.