Investment Philosophy

Midtown Investments has a research heritage going back over 25 years. In that time techniques and models have continued to evolve. The below principles however have remained steadfast.

Everything is relative value analysis: Our research, in common with published research confirms that the market takes longer to discount information than the efficient market hypothesis may suggest. At any one point in time, it is possible to find securities that are mis-priced. Our research over the past 25 years has been solely focused on identifying this relative discrepancy in value. To find over priced securities and under priced securities with a view to creating a risk controlled dollar neutral construction to extract the value – the pursuit of pure alpha.

Quantitatively replicate discretionary thesis: Relative value is best identified by comparing two securities in minute detail. However, in a universe of thousands of securities it is not realistic to carry out discretionary detailed research on each potential pair of securities. A trade off exists between discretionary detailed analysis of a few securities versus a quantitative analysis of all of the securities. Our research seeks to quantitatively replicate the analytical approach of a discretionary analyst who seeks to capture all of the discernible information using qualitative techniques. Instead we prefer to use quantitative techniques to capture the majority of the discernible information on the entire universe of liquid tradable stocks.

Seek alpha in productive spaces: Our research shows that the extent and duration of mis-pricing of securities is a function of visibility. The less crowded the space the greater the extent of mis-pricing and longer the time for markets to discount relevant information.We seek to take advantage of this in two ways. Firstly, by selecting from the largest possible tradable securities universe. Secondly, by avoiding conventional mass market tools and instead devising proprietary screens that are unique in their approach. The prism through which the securities are viewed define the level of crowdedness of the space.

View return always in the context of risk: Our focus has always been on achieving sustainable long term investment returns. Longevity in investment management can come only with a clear understanding of risks that are taken in the pursuit of return. Our approach is to seek to maximise risk adjusted returns by selecting only the best trades and to implement a multi-strategy approach that provides the maximum return for a unit of risk. We have focused on providing the best possible risk adjusted return and then allowing the investor to pick a level of return and the corresponding level of risk.
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