The investment process is a cornerstone of portfolio management. We have four key strategies that work as pillars of our process with tools and insights.
What We Do
Our investment process focuses our investments in the following business:
- The firm foundation of business makes the long-term sustainable growth of value, the future cash flow
- The business that drives the secular trend of improving economic capital, a critical economic wealth creation engine for the whole society
- Fundamentals, not speculative market behaviors, drive long-term intrinsic value dynamics
- Large to mid-cap companies in the global market
Our Focus | Investment Process
The companies that grow equity capital faster through organic growth than other businesses. The high rate of growth is driven by strong revenue growth and above average capital reinvestment. We exclude the companies with the strong influence from the swing of price and the market expectation when selecting a group of the businesses in this category. As a result, the companies tend to be in the group of above-average growers, but not in the fastest group of growth.
Fundamentals growth shows a robust and sustainable trend, which has a longer duration and predictability because of a resilient business foundation. The length of investment horizon is a primary driver of underlying persistent value of the investment. Predictability and manageability of a velocity of the business dynamics characterize the business model.
The group of companies that achieves moderate capital gains. They have the business and financial model that utilize the invested capital very efficiently. Excess return provides steady and satisfactory cash flows and above average shareholder return consistently. Capital investment requirement is measurable and stable. The financial structure can be accommodative when any unfavorable events happen.
The price of equity is low because of unfavorable expectation, while the business is not structurally in a decline in the long term or a pure cycle-driven leveraged business. This is not a regular investment chance but an opportunistic and tactical one. The herding bias overreacts to broadly and easily recognized negatives, which provides positively biased return opportunity, despite the required patience and volatility as an investment.
Fundamental Research Screening (AFIRI ™) | Investment Process
We use a hybrid and integrated original AI algorithms to develop our screening system, AFIRI ™ (Artificial Fundamental Investment Research Intelligence) that is personally optimized and customized to fit the specific way that a manager makes investment decision under fundamental equity research process and and value-oriented approach for long-term investment. The algos are test to be applicable to any public market in the globe.
For the application of advanced data science to complex human decisions, we are not naively view that such an algo can work like a professional human. We discussed this issue here. However, it is an approach that helps reinforce professionals’ judgement and reduces false-positives and false-negatives, and thus raise efficiency and coherence of investment process.
Construction | Investment Process
Our portfolio construction is based on the context of conviction of individual stocks and the right assessment of uniqueness of each conviction determines the first step.
We do not figure out and plan the final shape or characteristics in advance. The combination of individual securities is made with a consideration of duration, relationships and nature of certainty of ideas.
As such we do not have a top-down allocation decision by regions and sectors. We tend to overweight the areas where we find better ideas more frequently, and vice versa, because it is effective and making sense for us.
While we do not use the traditional multi-factor risk models in constructing portfolio as a tool to help investment decisions, we report it for clients to understand the advisory portfolio easily. We do not use it for investment decision process, because the quantitative models are heavily influenced by short term price movement and integrating it with the fundamental investment process is a mix of two distinct parts. It is a tool to complement us, as it has much broader scope.
The resulting total portfolio active risk is mid-high dingle digit. When the market gets volatile, it does up due to the latest pick-up of volatility.
Monitor | Investment Process
We think monitoring investment portfolio has a single mission, which is to update it and keep it in the best shape from both individual ideas’ perspective and the entire portfolio context.
Each idea has a specific combination of many individual elements that forms conviction, and our focus in monitoring is to check the development of key elements of each idea, including qualitative factors, quantitative factor of KPIs and the coherency of financial model.
We change our views typically when we found that one or a couple of those elements have lived up to the expectation, matured or changed for some reasons, or when unanticipated external incidents changed the course.
We also monitor the opportunity set in the market and may change investment when new opportunity with more reasonable uncertainty adjusted return is expected from it.