Chilton has a long-term focus and we view ourselves as investors not traders. The firm seeks to invest in, on the long side, high quality and sustainable business models with organic growth, strong cash-flow generation, good pricing power and management who are good stewards of capital. At Chilton, our strategy is fundamental and the investment process is conducted mainly from the ‘bottom-up’. This ‘bottom-up’ approach involves meeting many companies in order to find the best, and most enduring, investment ideas. On the short side, Chilton looks for ‘melting ice-cubes’ i.e. business models that are in secular decline and with deteriorating fundamentals.
One of the key features of our company is that we seek to generate alpha on both sides of the portfolio, long and short, throughout market cycles. In this sense, having a permanent short book is advantageous in periods of volatility or drawdown, however in a bull market long/ short investors will invariably lag long only investors. Over the full cycle though, we seek to generate a return superior to that of the market, combined with lower volatility.
Although Chilton conducts deep fundamental qualitative and quantitative research on the companies that it invests in, we find that the market is always capable of delivering surprises. As mentioned earlier, Chilton is predominantly focused on constructing portfolios from the bottom up, but at the same time it is also important to be aware of the macro environment in which we operate, and this helps us develop themes as well as leading us to prefer some countries and sectors over others.
Looking back on 2015, we were very pleased with our performance as it was clearly a stock picker’s market, which plays to our strengths. We believe Chilton’s out-performance of comparable benchmarks was attributable to strong stock selection within our sector allocations. In addition, our short book performance enhanced our returns and accounted for approximately one third of our positive attribution. 2015 marked a return to lower correlations in stocks, coinciding with the end of QE which helped the short performance. For several years between 2009 and 2014, the market often ignored poor fundamentals and stocks sometimes traded up, even on earnings misses, simply because they were in the right indices. Those days appear to have ended and we saw the market distinguish more clearly between the winners and the losers.
As we progress further through 2016, it is clear that global growth concerns continue to dominate the investor’s mind-set. We believe the US will experience solid but not spectacular GDP growth in the region of 2.5%. After 6 years of a US Federal Reserve fuelled bull market (QE), we have seen a structural shift in the market and we believe that passive index exposure is less likely to be successful going forward. For 2016, we comfortably expect mid-single digit earnings growth for the S&P 500 which is similar to what we witnessed in 2015. We believe the US market currently offers very good opportunities to find high quality business models trading at attractive levels (long side) and ‘melting ice cubes’ which are being punished by the market (short side). Furthermore, we expect to see some volatility during the year and we are equipped to be opportunistic and to take advantage of these market movements.
Company: Chilton Investment Company, LLC
Name: Richard L. Chilton, Jr.
Email: [email protected]
Web Address: www.chiltonfunds.com
Address: 33 Sackville Street, London W1S 3EB
Telephone: 44(0)20 7087 6000