Asia ex-Japan Equity

Reasons to invest

Price-to-quality

We are price-conscious investors with a focus on buying stocks that are attractively priced relative to value, across the quality spectrum.

Contrarian

We are attracted to stocks that are temporarily out of favour.

Asymmetric payoff

We seek opportunities where we will make more if we are proven right than lose if proven wrong.

ESG integration

We incorporate ESG and engagement into our investment process, drawing on the resources of EOS at Federated Hermes, our leading stewardship team.

Quick links

We seek an asymmetric return profile, and pay particular attention to the risk of downside in absolute terms

Jonathan Pines, CFA

Portfolio Manager, Asia ex-Japan

Why Asia ex-Japan Equity?

Value bias

Contrarian style

Asymmetric pay off

We look for companies priced attractively relative to value. We have a value bias, but invest in both traditionally defined ‘value’ and ‘growth’ parts of the market – as quality companies at higher multiples can also represent good value and can become out of favour. The portfolio exhibits significantly lower price-to-earnings and price-to-book multiples, and a higher dividend yield, than the index.

We are contrarian investors. Often the stocks we buy are attractively priced because news flow has recently been negative and the stocks have underperformed. We stand alone in terms of style versus our top 10 peers by assets under management. As a result, we have a very low correlation with the rest of the fund market.²

²Source: Morningstar, data as of end of December 2022. Coloured dots represent styles of peers as determined by Morningstar. Peer group selected based on top 10 AUM funds in the Asia ex-Japan Morningstar category.

We aim to invest so that the upside/downside of a position is asymmetric: the upside far outweighing the potential downside. Our larger positions tend to be those with lower risk – we define risk as the permanent loss of capital rather than volatility or divergence from the benchmark.

How we invest

Fundamental, bottom-up process

In our search for companies trading at low prices relative to quality, we apply our proprietary valuation models. We emphasise price-to-book for price and five-year average return-on-assets as a proxy for quality. We then analyse the company in depth, scrutinising company statements and speaking with management. The size of each position is informed by our assessment of the risk of loss – the smaller the absolute downside and the greater the asymmetry, the greater the position we are likely to take.

Risk aware

Throughout the investment process, we manage risk at the stock and portfolio level. At the stock level (by far the more important area where we manage risk), we focus on the price-to-value proposition and the risk of permanent loss: we assess leverage, profitability, consistency of earnings and free-cash-flow generation. At the portfolio level, we use various risk management models and analyses to identify and help assess aggregate portfolio risks.

ESG integration

Investment philosophy

We believe alpha can best be generated by bottom-up analysis: buying companies that are attractively priced relative to their quality.

Investment process

1. Screening

2. Fundamental analysis

3. Portfolio construction & sell discipline

We apply a liquidity and size screen, and filter for companies trading cheaper than expected relative to their quality, reducing the universe of 18,000 stocks down to around 250.

We study financial statements, write reports and project financials. We hold discussions with management, and incorporate ESG analysis. This process filters down our investable companies to circa 100 stocks.

We select 45-60 mispriced stocks, sizing the positions by considering risk. We have an 18-24-month average holding period. We sell when a stock reaches its intrinsic value, our assessment changes or we find a better idea.