Investment Process
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The company uses a combination of top-down and bottom up approach in managing its investment.
Specifically, we adopt a four-pronged approach: - 1. Macro Due Diligence 1.1 Understanding the broad economic and policy forces that are driving investment trends. The factors that we consider include the following : - (i) Macro-economic variables such as the direction and magnitude of monetary policy, interest rate policy, fiscal policy, exchange rate policy; financial stress, and taxation initiatives; (ii) Financial policy factors such as capital market reform initiatives, industry policy and other potential regulatory changes; and (iii) Other political or diplomatic development that may impact the financial markets or overall economic policy trend. (iv) Interactive effect between China's economies and its major economic counterparties. In doing so, the team regularly visits various government bureaus and government agencies and seeks to understand the latest views and priorities in government policies. The result is an ongoing assessment of the prevailing economic backdrops, possible government policy responses, trends and outlook in the next 12 months. 1.2 Assessing equity market risks premium and earnings outlook We proceed to use quantitative analysis in determining the level of equity risk in both developed and developing markets so as to determine the inherent risk and reward based on the current investment rates level. In particular, we perform :- (i) Equity risk premium analysis to reveal the risk of markets' valuation relative to its historical fair values with prospective equity earnings yields and prevailing bond yields. (ii) Scenario analysis with sets of different earnings assumptions. This help us to build a matrix of equity markets' fair valuation and their corresponding volatility under different economic assumptions and earnings forecast. The end result is the establishment of our best expectation of the direction of equity risk premium, the likely fair valuations, and the maximum downside risk and upside potential for various companies. 2. Corporate Due diligence 2.1 Establishing an Investment Universe. Depending on various investment themes and objectives, the team will create the corresponding investment universe as the basis of further research and due diligence. For an example, in our China focused global opportunities list, we try to include as many as possible companies in which we believe are either direct or indirect beneficiaries of China's secular economic development trend. In our Event-driven Global Merger and Acquisition list, we try to include as many as possible the likely overseas acquisition targets by Chinese companies in accordance to certain pre-determined acquisition rules and criteria in selected sectors. 2.2 Prioritizing investment opportunities with our proprietary "Quantitative Factor Model". Once a basket of investment targets is created, we proceed to rank their relative investment merits by evaluating 5 primary factors : - (i) Growth. (ii) Value (iii) Track Record (iv) Technical signal (v) Sentiment factors. Please click here for details on the QFM model. The ranked data ranges from a total of 0% to 100%, providing a balanced evaluation of the above 5 key factors that are likely to drive stock price performance over the next six months. With the ranked data, the fund manager is able to focus on both the strongest and the weakest links in the market. 2.3 Company visit and corporate governance due diligence We believe strongly that successful investment depends on a good understanding of business operations and the people that they involve. In doing so, the investment team prepares individual company rating sheet with documentation research, followed by on-the-ground due diligence visits, working with our strategic partners like CITIC Securities and Shanghai Securities. Fundamental research includes : - (i) Corporate Research focuses on key earnings drivers, key investment risks, merits of business model, strategic competitiveness, relative valuation and the experience of management. (ii) Corporate Governance focuses on the composition of the Board of Directors, the establishment of various independent committees for governance oversight, the treatment of minority shareholders, and the way in which environmental, social and governance (ESG) risks are addressed by the company. Please click here for details on the CGR model. Corporate Governance Rating has a maximum score of 100%. As all companies in the investment universe are rated on the same set of criteria, the fund manager is able to select the most attractive companies based on the environments in which they operate in, and to formulate a view on how they could fit into different investment strategies. 2.4 Establishing Investment Opinion and Target Prices With both quantitative ranking and respective due diligence on the companies, the team formulates investment views on stocks and establish target prices. Such prices will be reviewed from time to time in accordance with the overall investment environment and changes in the overall equity market risks premium. 3. Setting of investment strategies with investment policy and trend overlay. 3.1 Strategy weighting and investment exposure This involves the setting of the overall investment strategy such as exposure to Long / Short Strategy, Event-Driven Opportunities, and / or Relative value arbitrage. In particular, the positioning and construction of the portfolio depends on the relative opportunities that emerge in the preceding due diligence process. 4. Risk Management and on-going fine-tuning of investment risks 4.1 Risks budgeting and investment guidelines The average, likely range and maximum levels of investment exposure, long/short positions, stop loss limits are strictly adhered to. 4.2 Risk management reporting and on-going fine-tuning Please click to see the different types of reports for each identified investment-related risk. |