Investment philosophy

Our investment philosophy is to invest in quality companies at attractive prices. As we select shares based on stock-specific fundamentals, we are commonly referred to as an active, ‘bottom-up’ fund manager.

We seek to buy shares at levels where the market price is below what we perceive to be fair value given a company’s fundamentals and market conditions. We tend to invest in stocks exhibiting ‘value’ characteristics such as low price-to-book values, low price-to-earnings ratios and higher yields. As a result, our investment in various stocks and sectors is likely to differ from the market, and thus the benchmark index.

Investment approach

Our bottom-up stock selection process involves four key steps:

Step 1: Initial stock identification

We generally focus on companies with free-floating market cap above US$2 billion in well regulated, liquid markets. These companies typically have at least five years history. This provides an initial investment universe of around 700 to 800 stocks.

Step 2: Stock selection process

We assess a company’s quality based on several measures such as: 

• balance sheet strength
• consistency and reliability of earnings
• sustainability of profit margins
• strong capital management.

This limits our potential investment universe to around 400 to 500 stocks. These companies are subject to further active research and detailed valuation. We only buy shares if we believe the market price is attractive compared to our assessment of its fundamental value.

Step 3: Portfolio construction

We apply an unconstrained approach to portfolio construction where each stock is bought on its own merit, independently of the benchmark. This means tracking error is not targeted and country and sector weights are an outcome of the process (although we have sensible limits of 25% maximum exposure to any individual industry). The aim of our portfolio construction process is to strike the right balance between concentration and diversification.

Step 4: Managing risk

Our approach is to manage risk across a number of dimensions. Our experience has shown that if we pay close attention to the quality of a company and the purchase price, then our portfolio tends to suffer less absolute downside risk over the long term than the benchmark. Stocks are sold from the portfolio when we believe their market price represents their fundamental value, or a more attractive alternative arises. Additionally, a stock would be considered for sale if there was an adverse change in the quality of a company's business.

We may hedge currency exposure, but only when we believe there is a significant risk that the portfolio returns might be impaired by an adverse currency movement.

More information

Contact our Institutional sales and servicing team.