Man GLG Absolute Value

The Man GLG Absolute Value fund utilizes a value-based framework to identify opportunities by evaluating UK mid-cap companies based on their tangible assets and enterprise value. The strategy categorizes companies into four distinct buckets: two for long positions and two for shorts. Long positions include "Undervalued Assets," where companies trade below the estimated replacement cost of their tangible assets, and "Undervalued Returns," where companies have profit streams that are undervalued compared to the returns generated on their tangible assets. Short positions target "Overvalued Assets," where companies are trading at a multiple of their tangible asset base that the team believes is not justified by the returns, and "Overvalued Value Traps," where companies appear cheap based on their returns but have failing momentum and are consuming cash. To be considered for the portfolio, companies must not only fall into one of the designated categories but also pass specific checks. For Undervalued Assets, the company must be generating cash. Undervalued Returns require the company to have positive operating momentum, typically defined as positive earnings momentum. On the other hand, Overvalued Assets must demonstrate negative operating momentum to qualify as a short, meaning the shares must not only be expensive but also disappointing against consensus expectations. Lastly, Overvalued Value Traps are subjected to a threefold check: they must exhibit negative operating momentum, declining incremental return on capital employed, and be consuming cash. The team undertakes further fundamental analysis and bespoke modelling on companies that meet the above criteria to construct a high conviction portfolio of 70-100 stocks, expected to be split equally between long and short positions, with the aim of creating a market neutral portfolio. The investment process will follow strict rules around position sizing and liquidity limits and applies a fundamental sell discipline, which dictates that they sell when a price target is reached or if the required investment check is no longer valid. Given the universe they operate, liquidity is the primary driver of position sizing, closely followed by conviction.