We believe that attractively valued stocks with positive momentum and improving sentiment will consistently outperform the market. This reflects our notion that financial markets are inefficient and that astute investors can systematically identify segments of the market that consistently outperform or underperform. The inefficiencies that we aim to exploit are driven by behavioral biases that can remain in place over prolonged periods. Moreover, we believe that while pure value or pure momentum strategies may outperform during certain market cycles, combining the two strategies in one portfolio (a “barbell” strategy) can outperform on a consistent basis and through different market cycles.
We concentrate on a bottom-up stock selection process that focuses on the value and momentum characteristics of stocks. The key investment concept underlying our approach is based on a belief that both value and momentum investing may work in as many as 60% of months, but combining the two approaches in a single portfolio can result in outperformance in 70% to 90% of months.
Our disciplined bottom-up investment process aims to give equal attention to stock selection, portfolio construction and implementation.
Using a proprietary quantitative tool (the trends, momentum and value screen) enables us to systematically examine the value and momentum characteristics of 1,000 stocks in the Asia Pacific markets. We focus on value, momentum and news flow (earnings revisions and price momentum) characteristics.
We use individual securities as building blocks to create a portfolio that collectively has better value, momentum and news flow characteristics than the broader markets. We typically hold between 100 and 200 stocks with the intention of holding as many names as possible while maintaining exposure to those characteristics that we believe will lead to sustainable outperformance.
The portfolio management team monitors risk exposures to common factors, such as size, liquidity and leverage. This helps to ensure that we are exposing the portfolio to the specific style factors we are targeting while not taking any large unintended factor bets. This commitment to risk management is a hallmark of our process.