Active investing is at our core

We do it at two levels. One is at the company level, and the other is at the portfolio level.

Starting at the company level, there it's really around our mindset of downside protection.

As I mentioned earlier, we're trying to invest in companies where we feel the industry structure is quite stable, where the competitive positioning of the company is not at risk, and that's really what drives sustainable free cash flows and dividends over time, so really what drives that ability to pay dividends.

And so we're constantly reassessing whether that competitive balance might change or not, whether regulation might change, whether geopolitics or technological change could upset that industry structure or not. And that's really our first level of defense on on on on risk is is at the company level through, you know, making sure that that ability to pay dividends is compromised and that we have valuation and balance sheet on our side to begin with. And I think if we do that work well, you know, we're in a pretty good starting spot in terms of of managing risk. And then the other thing we do at the company level is try and be very rigorous around our sell discipline and re underwriting our investment thesis on stocks to make sure that we can pick up very early if there is a degradation in ability to pay dividends, and also to make sure that valuation doesn't play too big of a role in why we own the stock over time.

And so I've found in my career over time some of the common mistakes I've made as a valuation sensitive investor is to let valuation be too big of a part of a thesis either at the outset or over time as I'm holding the stock, and so we try and keep ourselves in check there, and that's sort of an important part of our re underwriting and self discipline to avoid those traps or to catch them early.

At the portfolio level from a risk management perspective, really we lean quite heavily into sort of the modern portfolio management risk tools. It's probably been the biggest evolution in my investment process over the last decade versus maybe twenty years ago, is there's just much more rigorous in understanding risks and exposures across the portfolio.

And at the portfolio level, we make sure that we have, you know, the right diversity of business drivers.

You know, that's particularly actually quite noteworthy in this environment right now where we have some stocks that that are energy sensitive and are actually benefiting from some of the geopolitical turmoil going on in the world.

We have some banks and industrials that tend to do very well when the economic cycle is on an upswing, and then we have a lot of idiosyncratic names that do well regardless of the type of economic environment we're in. We're just kind of making sure that across the portfolio we have that diversity.

And then we use those tools as well to make sure that the portfolio is going to behave as we would expect it to behave, or that it'll be reflective of our conservative investment principles.

So is the beta lower than the market? Are we well positioned to protect to the downside in most environments? Are we delivering in a position to deliver in terms of yield and total return? And are we exposed to quality, that intersection of quality and valuation that is so important within dividend investing.

So that's how we try and manage those exposures at the top down level, and always make sure that our level of exposure is tied to our level of conviction.