Research and Philosophy

Research and Philosophy

A Global Value Investing Specialist

Brandes Investment Partners, L.P., is a leading investment advisory firm, specializing in managing global equity and fixed-income assets for clients worldwide. Since the firm’s inception in 1974, Brandes has applied the value investing approach, pioneered by Benjamin Graham, to security selection and was among the first investment firms to bring a global perspective to value investing.


The Brandes Difference

  • Independent and Free of Outside Influences: In addition to our commitment to the principles of the Graham and Dodd value-investing approach, Brandes differentiates itself by remaining an independent, employee-owned firm. Being free of outside influences keeps the firm solidly focused on helping clients achieve their long-term financial goals.
  • Team Approach to Security Selection: Brandes builds client portfolios using securities selected carefully by an Investment Committee. This helps prevent reliance on a single manager and allows Brandes’ value investment approach to thrive on the synergies of an experienced and diverse team of investment professionals.
  • The Result: True Value Portfolios: At Brandes, we believe independence and a team-oriented culture not only differentiate us from the competition, but allow the firm to build true-to-style value portfolios designed to help our clients pursue their investment goals over the long term.

Our Investment Philosophy

By applying the value-oriented investing principles of Graham and Dodd, Brandes seeks to take advantage of market irrationality and short-term security mispricing by buying securities that we believe are undervalued and offer attractive total-return potential – i.e., dividend income and capital appreciation growth. Our analysts begin with rigorous, independent, bottom-up analysis of individual companies. By choosing stocks that are selling at a discount to our estimates of their intrinsic business value, Brandes seeks to establish a margin of safety and an opportunity for competitive long-term performance.

"Margin of safety" is the difference between a company’s market price and what Brandes believes is the intrinsic value of the company. Intrinsic value is a company’s real worth, taking into consideration all determinants of value. For example, we believe book value and short-term pricing variables don't always reflect true value. That’s why we undertake a thorough due diligence to estimate each company’s true value and establish a reasonable expectation for how its price may behave going forward.

The theory of value investing holds that the market should eventually realize the true worth of a company and its price should climb toward its intrinsic value over the long term. This combination of rational fundamental analysis and the discipline to try and take advantage of market price irrationality enables the firm to target competitive long-term results.


Why Brandes?

  • An unwavering belief in the long-term benefits of value investing.
  • A disciplined, team-oriented approach to identifying high-quality securities selling at what we believe are discounted prices.
  • A 40-year history of independent, bottom-up portfolio construction and client service.

Portfolio Construction

Brandes’ process uses fundamental analysis of price ratios to seek quality investments trading at discount valuations. Price ratios are a way to measure how cheaply (or expensively) a stock is trading compared to fundamental characteristics of its issuing company. For example, the price-to-earnings ratio (P/E) represents the current stock price divided by earnings. A lower P/E indicates a stock may offer better value in relation to its earnings. Similarly, a lower price-to book (P/B), price-to-cash flow (P/CF) or debt-to-equity (D/E) ratio may speak well of a company’s balance sheet and growth potential. Average dividend yield may also help us to gauge a company’s outlook for dividends, which may affect a stock’s total return over the long run.

We use a similar approach and investment criteria for identifying quality, potentially mispriced fixed-income securities:

  • Analyze securities based on current, anticipated and worst case credit rating
  • Do not attempt to time market tops or bottoms
  • Do not sell securities when presented with short-term disappointments
  • Tend to add to positions when presented with market weakness

Structured, research-driven process:

  • Daily review of markets, bond offerings and portfolio structure
  • Review of companies presented to the Equity Investment Committees
  • Fixed-income analysts present bond evaluations to Fixed-Income Investment Committee
  • Fixed-Income Investment Committee approves buy and sell decisions

The goal of such thorough research analysis and an Investment Committee discussion process are portfolios that we believe are well diversified, contrarian in composition, and which seek the lowest entry point risk possible for our clients.


What Is Value Investing?

Value investment managers research and analyze individual companies to determine their underlying business value (intrinsic value), and then look even further for companies they believe are trading well below this estimated intrinsic value. Ideally, companies are purchased for a value-oriented investment portfolio at significant discounts, and sold if they appreciate to their intrinsic value. 

Our emphasis on Graham and Dodd value principles results in a concentration in value securities. Such value securities, by their nature, have tended to be out of favor with many investors, and their market prices and liquidity may exhibit periods of higher volatility than non-value securities. In addition, the market may experience periods where investors’ concerns about risk cause value securities as a whole to generally fall in or out of favor, causing our investment performance to vary widely from that of the benchmark. No investment strategy can assure a profit or protect against loss. The declaration and payment of shareholder dividends are solely at the discretion of the issuer and are subject to change at any time.

Invest with Confidence – Brandes Possesses Flexibility and Experience


Definitions:
  • Price-to-Earnings: Price per share divided by earnings per share
  • Price-to-Book: Price per share divided by book value per share
  • Price-to-Cash Flow: Price per share divided by cash flow per share
  • Debt-to-Equity: Total liabilities divided by shareholder equity
  • Dividend Yield: Dividend divided by current market price of the investment