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Meet the Manager: Sandy Pei

22 May 2023 |
Active ESG
In this latest manager profile, we spoke with Sandy Pei, Portfolio Manager for the Asia ex-Japan and China Equity strategies, to learn more about her career beginnings, the team’s value-conscious approach to investing, and why she likens fund management to treasure hunting.

What’s your role at Federated Hermes?

I’m deputy portfolio manager of the Federated Hermes Asia ex-Japan Equity Strategy and co-portfolio manager of the Federated Hermes China Equity Strategy.

What did you want to be when you were younger, and how did you get started in your career?

When I was a little girl, I wanted to sell ice cream so that I could have an unlimited supply of free ice cream!

As I got older, my career aspirations changed slightly. I had my introduction to the corporate world through my father’s meetings with his partners, which were held at home in Beijing during the early years of their start-up. I always found the conversations fascinating even though I did not fully understand the context of what they were discussing! I first invested in the stock market during my time at college, and my career started when I joined the (Federated) Hermes Emerging Market Equity Fund as an analyst in 2009.

What do you enjoy the most about your current role?

I feel the job of a fund manager is not dissimilar to that of a treasure hunter. But ‘the hunt’, instead of being physically demanding, requires analytical skills, patience, and – a bit like a real treasure hunt – some luck!

Being a fast learner is essential in this role as we are required to understand various industry-specific issues before the potential investment idea is discovered more widely and the opportunity is lost. The investment universe is large and continuously evolving, which means the learning never ends and my job is never done. Even after 14 years in this industry, l feel the same excitement when unearthing a potential hidden jewel through rigorous research.

How would you characterise your style as an investor?

I would describe my style as an investor as ‘contrarian with value bias’.  We are always looking for good deals. We are indifferent in buying high- and low-quality companies, as long as we pay a lower price than their fair values.

I feel the job of a fund manager is not dissimilar to that of a treasure hunter.

When you’re considering making an investment, what key metrics or attributes do you look for the most?

As contrarian investors, we buy stocks that have underperformed and look cheap compared to their long-term return profiles. So, the first thing we do is find out what went wrong and why the company is unloved by the market. Is the company facing cyclical or structural challenges, and what has management done to address those issues? What has been priced in by the capital market?

We like ‘value’ companies that are technology or cost leaders – those that have a strong cash flow and balance sheets, which means they are more likely to survive an industry downturn.

A margin of safety in an investment is important, but cheap valuation alone is not enough. We also want to see that management has been actively addressing near-term challenges.  For example, that they have invested in research and development (R&D) and new markets, adjusted asset and costs bases, or are willing to change capital return structures if the business becomes ex-growth but cash flow remains stable.

Same question as above but for exits from the portfolio: What would trigger a sale or an exit of a holding?

There are three main scenarios that would trigger the exit of a holding. These are:

  1. The investment case plays out, and the stock has performed well.
  2. The investment case is broken.
  3. There are other stocks with similar exposure, but more attractive risk-reward profiles.

What are the strengths of the Asia ex-Japan and China Equity team(s)?

We are fortunate to have a stable team. Jonathan (Pines, Head of Asia) and I have been working together since the launch of Federated Hermes Asia ex-Japan Strategy, which now has a 13-year track record and ranks as one of the top in its category. We are also one of the few value-conscious fund managers that have survived a prolonged period of style headwind.

On top of this, more than half of the team are Chinese and female, and everyone adopts a generalist approach to the work. The team culture is supportive, and our analysts are encouraged to reach their full potential.

Given the current market and macroeconomic backdrop how should investors position themselves in the coming months?

All assets are re-priced in a higher interest-rate environment. Areas we have always focused on – valuations, balance sheets, cash flows – are becoming better appreciated by market participants. We believe Asia ex-Japan and Chinese equities are attractively priced in both absolute and relative terms. Many risks are real and investors should be cautious, however, most of the risks have been reflected in valuations. Timing the market is extremely difficult. Investors may want to think if they want to own a stock or fund if they can  choose to buy now, or have no access to the market in the next five years.

What’s special about investing in Asia? Why should investors consider adding an allocation to their portfolios?

Asia is the fastest growing region in the world, and its benchmark weight in global equities is far below its GDP contribution to the global economy. Valuation is attractive after long-term underperformance when compared to global equities.

What are your interests outside of work?

I love travelling and the arts. I’m not the sporty type, but I do enjoy swimming, yoga and skiing.

To find out more about the Asia ex-Japan and China Equity strategies, please explore our website.

For Sandy’s commentary on investing in China, please watch our latest video insight.

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