This report outlines an investment strategy centered on acquiring robust businesses at prices below their inherent worth. A recent significant portfolio change involved introducing Fluidra S.A. while divesting from Genpact. Fluidra, a prominent global leader in pool equipment manufacturing and distribution, was integrated into the portfolio with a 1.7% weighting. This decision was driven by its strong market dominance, consistent revenue streams, and an appealing valuation, even when considering broader macroeconomic hurdles and trade tensions. In contrast, the stake in Genpact, which constituted 1.8% of the portfolio, was liquidated. This move was made to mitigate risks associated with the company's evolving business model and the disruptive potential of artificial intelligence, opting instead for investments offering clearer value propositions and more predictable returns.
Our investment philosophy is deeply rooted in a 'business owner's perspective,' emphasizing a thorough examination of a company's economic fundamentals and the overall quality of its operations. This diligent process underpins our decision-making, ensuring that every investment aligns with our core principle of long-term value creation. By focusing on firms with enduring competitive advantages and sound financial health, we aim to build a resilient portfolio capable of navigating various market conditions.
The inclusion of Fluidra exemplifies this philosophy. As a key player in the global pool industry, Fluidra benefits from a defensible market position, driven by essential pool maintenance and enhancement needs. Its robust recurring revenue base provides stability, while its current valuation presented an opportune entry point for investors seeking long-term growth. The company's resilience is particularly noteworthy given the prevailing economic uncertainties, reinforcing its appeal as a durable asset.
Conversely, the divestiture of Genpact reflects our commitment to continuous portfolio optimization and risk management. Despite its previous performance, the rapid advancements and uncertain impact of artificial intelligence on Genpact's core business process outsourcing model introduced a level of unpredictability that no longer aligned with our risk-reward criteria. This strategic exit allowed us to redeploy capital into opportunities with more defined pathways for value appreciation, consistent with our rigorous investment framework.
The portfolio, typically comprising 25 to 40 companies, is carefully diversified across various industries to mitigate sector-specific risks. We generally initiate positions with a 2% to 4% weighting, reflecting a balanced approach to capital allocation. Furthermore, we often hedge significant currency exposures to protect against adverse foreign exchange movements, thereby enhancing the stability and predictability of returns for our international equity holdings. This methodical approach ensures that while we pursue compelling opportunities, we also maintain a disciplined risk profile.
In summary, our investment strategy prioritizes identifying and investing in fundamentally strong companies that are undervalued by the market. The recent adjustments, involving the acquisition of Fluidra and the sale of Genpact, demonstrate our agile and disciplined approach to portfolio management, continually seeking to enhance value and manage risk in an evolving global landscape.
