Our Investment Process

The Investment Process for The Munro Fund is different from every other collective fund we are aware of in the UK. The difference is that this fund is managed in a mechanical fashion rather than a discretionary fashion. In other words the managers are guided on what to hold and how much of it by the process outlined below. This brings four advantages.

The first is that the process can be maintained independently of individuals so it will be the same in ten years or twenty years time.

The second advantage is that the process is not susceptible to the whims or fancies of an individual and is therefore more consistent and reliable.

The third advantage is that by dealing with lots of data in formalised way using the best technology it allows the fund to buy and hold a large number of shares. Holding a large number of shares significantly reduces the risk to an investor should one company experiences a problem.

The fourth advantage is that using a standard process without a lot of decision making the fund can be run by only a few people. This reduces the cost and allows us to keep our fees down so you get better returns.

A Ten Step Process

1. Update universe.
   We download the constituents of the FTSE 350 index and remove those companies classified as Investment Trusts. These are companies that simply invest in other shares and are just investment vehicles. Removing these and companies that are not forecast to pay a dividend reduces the universe to about 300 companies. The index is changing constantly due to takeovers and new companies listing on the stock market.
   
   
2. Update Shares Outstanding and Dividend Forecasts.
   From published data we extract the exact number of shares outstanding for each of the 300 odd companies and the most recent dividend forecasts using consensus estimates.
   
   
3. Adjust for foreign exchange.
   A lot of companies report their accounts in currencies other than sterling, mostly in dollars. Using the current exchange rate we translate those forecasts into sterling.
   
   
4. Incorporate Share Buy Back plans.
   Using our knowledge of the companies, based on their regulatory announcements, we add in to our database how many shares each of the several hundred companies we are monitoring is expected to buy and sell over the next twelve months. That affects the size of the company and hence the amount it is expected to pay out in total as dividends.
   
   
5. Calculate the Forecast shares in Issue.
   Using this data we then calculate how many shares each company will have in issue for the next financial year.
   
   
6. Calculate Dividend Payments.
   Using the dividend data and the share data we then calculate how much total cash each company will pay out as dividends in the next financial year.
   
   
7. Calculate a Total Dividend.
   Using this data we then calculate a total dividend payout for the 300 or so companies in our universe.
   
   
8. Review Data for Consistency.
   At this stage we review all the estimates to ensure they look reasonable and up to date.
   
   
9. Calculate a Weight for Each Company.
   Now that we know what each company is expected to pay out and what the total payout is we can calculate a weight for each company in the universe.
   
   
10. The Process is Then Repeated Every Month.

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