strategies

Asian equity markets offer inherent inefficiencies that create a rich environment for identifying alpha opportunities. These occur across the market cap spectrum, with small and mid-cap stocks often offering greater inefficiency, weaker investor understanding, and greater growth opportunities.

A Pan-Asian approach allows Portfolio Manager Byron Gill to focus where he believes the most attractive risk/reward opportunities have been identified and helps to smooth the volatility that can occur within underlying markets in the Asian region. This strategy adopts a fundamental bottom-up approach to identifying companies that fit within well-specified long and short investment patterns that have consistently generated significant excess returns for us over time. Our assessment of the key variables comprises deep primary research in a rigorous 360-degree assessment of the market opportunity and cyclical conditions, business model robustness, and management’s ability to execute on the opportunity.

Asian markets offer a large and growing pool of companies benefitting from strong economic growth, demographic shifts, and an increasing stock of intellectual property. This potential can be obscured by short-term volatility, macro-economic and geopolitical concerns, and sentiment-driven investment flows.

Portfolio Manager John Pinkel adopts a dispassionate, in-depth, fundamental approach to build a concentrated high-conviction portfolio of attractive franchises with wide moats and high quality management that can compound at a high level over the medium- to long-term. A valuation framework that seeks to quantify the likely market value of these franchises on a three- to five-year time horizon provides an investment framework that allows investors to capitalize on Asia’s compelling secular growth opportunity.

Japan’s equity market is deep and liquid, but is under-covered, poorly understood and frequently mispriced. This creates an opportunity for a long/short fundamental approach to add value.

Portfolio Manager Howard Smith constructs a relatively concentrated portfolio of long and short Japanese equity positions, identified through an in-depth fundamental research process centered on interaction with the management of listed companies. A dedicated Japan research team also leverages the expertise of Indus’s Asia-focused investment team across our global research offices.

An understanding of the sources of the mispricing and a likely roadmap to correct this are critical elements of our process. Engagement with companies - a consistent feature of our approach since inception - is bearing more fruit, thanks to a paradigm shift in corporate governance. Furthermore, improving ROIC across many sectors in Japan is driving a virtuous cycle of stronger cash flow generation and multiple expansion.

Japan’s equity market is deep and liquid, but is under-covered, poorly understood and frequently mispriced. This provides an attractive investment landscape for bottom-up stock-picking, focusing on changes in ROIC at listed companies, in turn driven by governance change, more effective allocation of capital relative to its cost, and engagement with senior management. Japan is also a fertile hunting ground for leaders in many global supply chains or end markets – companies with deep moats around them, expanding addressable markets, and pricing power, often valued at steep discounts to peers overseas.

Our long-only strategy, led by Portfolio Manager Howard Smith comprises a relatively concentrated, high conviction, diversified portfolio of Japanese equities, identified through an in-depth fundamental research process and interaction with the management of listed companies. A dedicated Japan research team also leverages the expertise of Indus’s Asia-focused investment team across our global research offices. An understanding of the sources of the mispricing and a likely roadmap to correct this are critical elements of our process. Productive dialog with companies - a consistent feature of our approach since inception - is bearing more fruit, thanks to a paradigm shift in corporate governance and capital efficiency.