Our Research

Company engagement

We are also active in our engagement with company management teams. The primary aim of this engagement is to understand the long-term aspirations of the company. We want to represent our investors’ best interests in our discussions with management teams. Successful investment requires a partnership between managers and owners.

Long-term focus

Equity markets take a random walk on a daily basis. The forces of fundamentals and valuation may be over-ridden by sentiment and “market noise” in the short term, but it is the longer time periods that count for portfolio performance. We aim to look beyond the short-term noise and focus on the long-term drivers of share prices.

Fundamentally, the team takes a long-term valuation-based approach to investment so holding periods tend to be longer and portfolio turnover lower than average. Different valuation methodologies are used to build a comprehensive understanding of the valuation of both the overall market and individual stocks. For the overall market and at an individual stock level, the team tends to use the FED model to guide its view. This approach compares the earnings yield of the equity market with the local risk-free rate. In the past this valuation tool has been an effective and helpful directional indicator of the Chinese market.

We believe that by focusing on valuation and identifying companies that can deliver sustainable growth, today and in the future, we can deliver very attractive long-term outcomes for our investors.

Our valuation lens

In essence, we view all companies through the same valuation lens. We combine a rigorous fundamental analysis of companies with our perspective of the economic variables that may impact them but which they do not control. This approach allows us to construct robust investment rationales. We focus on what matters: the long-term, the fundamentals and valuation.

Different methodologies are also used at an individual stock level to drive a comprehensive absolute and relative picture of valuation. From an absolute perspective, the team uses a dividend discount and a DCF approach. From a relative perspective, the team use a range of tools, including PE, PB, PEG and EV/EBITDA, amongst others, to compare stocks locally and internationally. These tools are used to help guide both buying and selling decisions. Finally, the team also closely monitors changes in overall market liquidity. Being aware of and understanding why market liquidity has changed can inform the valuation and broader market judgements the team is making over time.