We believe a focus on economic value added (EVA) will drive long-term returns while controlling risk and that companies generating returns in excess of their cost of capital create shareholder value. We also strive to exploit short-sighted markets by utilizing a long-term investment horizon.
Our investment process is based on the concept of EVA (economic value added), which focuses on finding companies that over time, will exhibit characteristics such as strong/growing cash flow generation, sales, margins and/or asset utilization.
Our process is underpinned by fundamental stock selection with an awareness of the macroeconomic conditions through country analysis. Our emerging markets universe includes Hong Kong and Singapore, and contains 4,000 companies, representing 25 countries. First, a liquidity screen excludes companies with market capitalizations under US$500 million and companies with a daily average trading value over the most recent 100 days of less than US$3.0 million.
We apply an EVA screen to the resulting universe to uncover companies that have the ability to generate a return on investment that exceeds the company’s cost of capital. From there, each analyst reviews the companies in their assigned sector, assessing the best candidates for the Portfolio based on their franchise value, competitive advantage and investment profile. This leaves approximately 225 companies to undergo further in-depth proprietary fundamental research.
Fundamental research is the most significant part of our investment process. It occurs in five phases: EVA Analysis, Qualitative Analysis, Financial Analysis, Valuation and ESG Analysis. The result of our research reveals emerging market stocks with strong profitability, resulting in sustainable earnings growth prospects not recognized by the market and selling at attractive valuations which drive our disciplined and diversified portfolio construction process.