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An Asia Pacific ex Japan equity fund that is managed according to a valuation-aware investment approach. The manager seeks to capitalise upon market inefficiencies to invest in stocks trading at a discount to his view of intrinsic value. Within its sector the fund features in our 'All-Cap, Value-Biased' category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 6. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 6 means the fund’s historic volatility is between 15% and 25%.
The fund’s five-year standard deviation is higher than both mainstream Asian equity indices and the peer group average. This fund is more volatile than many peers in the peer group which, given the management style, is to be expected. The manager’s more explicit value bias can lead to a distinctive portfolio which behaves differently from the benchmark. Investors should be aware of the potential for larger drawdowns at times. Different share classes could have differing SRRI scores.
William Lam and Ian Hargreaves are Co-Heads of the Asian and Emerging Markets Equities team. Mr Lam joined the group in 2006. He was promoted to sole manager in May 2017 having previously co-managed the fund with Stuart Parks, former Head of Asian Equities. The fund's investment philosophy was founded by Mr Parks, who retired in July 2019.
The investment team believes that investors' behavioural biases give rise to market inefficiencies. They cite three interlinked factors to explain this, namely: markets often over-react by placing undue focus upon near-term issues; expectations are often overly influenced by the extrapolation of current trends; and, markets respond to momentum and other technical drivers, as well as to fundamentals. The team seeks to exploit inefficiencies through careful fundamental analysis and a strong emphasis on valuation.
The portfolio is reasonably concentrated, featuring 50-70 stocks. The manager is benchmark agnostic and position sizes are a function of expected return, conviction, liquidity, downside risk and portfolio risk overall. Sector-wise, the only constraint is that the two largest sectors, financials and IT, will usually be no less than half/no more than double that of the index. The same rule applies to the five main markets - Korea, Hong Kong, Taiwan, China and India.
The approach is primarily bottom-up in nature, although an understanding of the macro backdrop provides an important framework. Initially, the available universe screened to exclude stocks with insufficient liquidity and management quality/corporate governance issues. In seeking stocks that are priced below their intrinsic value, the manager relies upon fundamental research from in-house and external sources, together with direct company contact. His main aim is to identify companies whose current and future prospects are not reflected in their valuations, taking into consideration his view of future earnings growth. As well as considering quantitative measures of valuation, the manager undertakes fundamental research into areas such as the quality of a company's products and services, the risks to which it is exposed, the strength of the management team and the extent to which the firm benefits from unique characteristics or other advantages. Meetings with company management are an important part of the process and used to enhance the manager's understanding of the business.
Stocks are purchased if they demonstrate sufficient potential for share price appreciation, subject to the team's assessment of risk. A stock is sold if it is no longer undervalued, a more attractive opportunity has been identified or the investment case no longer applies.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
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