Our approach is simple, repeatable and, based on common sense. We focus on high quality businesses that are demonstrably more profitable and growing more rapidly than the market, and businesses that we believe have a lower risk. We are focused on profitability, on businesses with higher profit margin, higher return on assets, higher return on equity, and they also have to grow faster. What this provides is higher quality businesses that experience faster growth right across the portfolio.
Our research process is designed to identify these types of companies. We have about 475 of these in the approved list today, and we construct the most compelling combination of securities that belong to businesses that look like this. Now, in isolation, this doesn’t really make us all that different – a lot of people have figured out this is a common-sense way to invest. You can compound undervalued securities in these businesses and generate a lot of wealth over the long term.
Where we are differentiated though, is how we go about making decisions – what we call collaboration without consensus. This behavioral framework to decision making in the context of investing is really powerful. Our team is a very diverse group of people, so it’s all about cognitive diversity and shared values. For many years, we have consistently and thoughtfully set out to find people with different backgrounds, different experiences, different nationalities – cognitive diversity, but shared values. We all believe in the merits of quality growth investment. So at Harding Loevner, we don’t use investment committees. This is because we think by the time you get people to agree by committee, it’s probably too late – on the way up, or the way down.
Instead, we encourage (and enable) individual decision making and accountability. That’s the part about ‘without consensus’. But we do foster collaboration, and we’ve found that if we can have an active debate within our group about an idea, we will individually make more considered investment decisions. We have a common language that we’ve put in place as our analytical framework, and our debating structure. So, when we make decisions, we can make independent decisions – we don’t need to have anybody agree with us – but we can only make the decision after running through a disciplined debate with a structured common language format with our research group. And we’ve learned, time and again, that our decision-making is better individually post-debate than without a debate, or within some consensus-oriented investment committee.
Not only that, at Harding Loevner, senior team members become owners of the business. We’re all partners in the company, so we have an owner mentality. We all have a large personal investment in Harding Loevner.
We also have common sense in how we integrate ESG. We look at everything as a risk. ESG risks are just as much included in our analysis as any other risk, and it’s integrated tightly into our investment research by each industry analyst.