Investment approach

Smaller Companies

We are active managers employing a long-only value approach to investment. Our investment process has been developed as a result of our own research and experience with the asset class.

Smaller companies in Asia are of interest because they are typically less well-researched, offering scope for material pricing inefficiencies. An active investment management approach offers the potential reward of a materially better outcome than regional equity index benchmarks both in terms of return and volatility of returns. We consider that our approach is a valid solution to investors seeking outperformance in Asia ex-Japan equities in general (not just within the small cap sub-class) and also those investors seeking long term positive returns from Asia ex-Japan equities.

Our focus is on stock selection. We generate our own ideas and conduct our own research. Our emphasis is on what we pay for a stock and the qualities of a company that we get in return for what we pay. We aim to invest in cheap stocks where there is a reasonable probability of positive change to unlock the cheapness. We pay attention to the appropriateness of a company’s balance sheet and its ability to generate cash flow.

While we are long-only investors, we take a conservative approach to portfolio construction, with the aim of avoiding extreme outcomes. We do not hedge against market risk or use cash levels deliberately to vary exposure to the market.

Systematic Equities

The Asian Systematic Equities Strategy employs quantitative tools to identify inefficiencies in the pricing of stock fundamentals. These tools are combined with a range of sophisticated processes to manage risk. Particular emphasis is placed on managing liquidity risk and the substantial macroeconomic cycle risk evident in Asian markets.

The systematic stock selection process monitors a range of intuitively sensible fundamental factors. Crucially, these are factors for which we have identified evidence of investor under-reaction. While investors do recognize these factors are important (e.g. they react to changes in the factors), they do not process the information in an efficient and timely manner. This results in investment opportunities.

Historic backtests over more than 15 years of data and roughly 11,000 stocks indicate attractive risk, return and correlation features. Backtests indicate strong outperformance of the benchmark index in both up- and down-markets. In addition, relative returns were negatively correlated with the benchmark index and more negatively correlated in down-markets relative to up-markets. Realised fund performance to date has been consistent with these features.

This combination of characteristics can result in an improvement to institutional portfolio risk/return dynamics when a significant portfolio weight is allocated to the strategy.

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