The investment process is based on the belief that the dominant influences on Asian equities will vary as cycles and environments change. The approach is also shaped by the fund managers’ view that the region will generate long-term growth and companies are increasingly paying dividends back to shareholders.
While expectations will alter as events unfold across Asia, the end aim of the investment process remains constant. The process seeks to identify companies that will benefit from the growth in the region, have an attractive yield and give a greater chance of expectations being beaten. The process aims to avoid those stocks that are likelier to miss expectations. The process is also designed to enable the fund managers to compare companies on a like-for-like basis across countries and sectors.
By targeting at least 1.1 times the dividend yield of the region across the portfolio, the fund managers believe this will ensure the equities they invest in are amongst the more conservative, better managed companies. They do not see the additional yield criteria as leading to low relative returns, as long as it is combined with growth and attractive valuations.
To filter the potential universe of stocks and to enable the fund managers to focus resources and time on the areas of the Asia Pacific ex-Japan market that they believe will generate the greatest returns, the fund managers identify what are likely to be the key drivers of equities in the region over the following six to 12 months. They then determine the impact and the winners and losers of these drivers before selecting companies based on yield, earnings growth and cheap valuations.