Investment universe
The fund focuses on small-sized companies in Asia, excluding Japan. The investment universe consists of over 2,000 stocks in more than 10 countries, and comprises small-cap Asian companies. Analysis indicates that stock-specific factors are the largest contributor to returns on small-cap stocks in Asia ex Japan. Derivatives may be used to achieve the investment objective.
Investment team
The small investment team is led by Paul Rathband. The team places primary emphasis on its capability to generate investment insight through bottom-up research with a top-down macroeconomic and risk-control overlay. It is integrated into a broader Asia ex Japan equity team.
Research
Stocks are evaluated using an initial proprietary quantitative screen combined with different valuation metrics, such as enterprise value to sales ratio, price to earnings ratio, price to book ratio and dividend yield. Focus is set on the business model and management of the companies, as well as proper balance sheet analysis, which is critical to understanding any changes (positive and negative) that might be expected; this is an area where the team seeks to gain a competitive edge. In ordinary circumstances, no investment will be made without first meeting representatives of the company concerned.
Portfolio construction
The following factors influence the portfolio construction: 1) stock-specific risk; 2) country risk; 3) style risk; and 4) sector risk. A buy decision is primarily driven by a conviction that a stock is fundamentally undervalued and that there are catalysts that will narrow the gap between the currently traded price and fair value, leading to outperformance. A sell decision will be made when the stock either approaches or exceeds the target price or if something changes that makes our original investment rationale invalid. The fund is managed through an unconstrained approach, with an expected tracking error range of 3 – 16% and typically holds 50 – 80 stocks.