At 8IP, we believe superior investment performance is achieved by applying an active, bottom-up approach and investing for the longer term.
We view our investments as a business owner, not just an equity holder. To achieve this, we ensure we have superior knowledge of companies through proprietary research and we apply disciplined risk management via a structured valuation-driven strategy.
At the heart of our approach are five key investment tenants:
- Valuations (price to book) determine opportunities
- Long-term value creation is driven by sustainable return on equity (RoE)
- Fundamental research confirms valuation and sustainable RoE
- Investment-led operating environment overcomes common investor behavioural weaknesses
- Minimise frictional costs.
Our investment process moves through the five key stages captured below.
1. Idea generation
Opportunities begin as an idea generated by a member of the investment team. Ideas can come from a range of sources such as:
- Themes: Market, economic, social or industry trends and developments;
- Insights: Gained from trips to the region, interaction with companies and the investment team`s knowledge of the Asia Pacific region; and
- Financials: Top-level financial screens.
2. Company research
The investment team then conducts qualitative research into companies that benefit from, or have the potential to benefit from, this idea. Research sources include:
- Public information: Publicly available information such as annual reports, media articles and thirdparty research;
- Company interaction: Direct interaction with the company including meetings with executive management and site visits; and
- Channel checks: Discussion with the company`s suppliers, customers, partners and competitors.
One of the objectives of company research is to identify whether there is Delta that is, a development, catalyst or corporate event that the broader market may have failed to recognise or completely understand. 8IP seeks to quantify the impact of these events and the difference in the Investment Manager`s expectations relative to market consensus.
3. Financial analysis
The investment team then conducts in-depth analysis of the company. This includes:
- Financial analysis: Examination of the balance sheets, income statements and cash flow statements of the company for at least the past 10 years (where available);
- RoE analysis: Assessment of the company`s historical and projected RoE position, including the factors that contribute to RoE such as leverage, asset turnover, operating profit margins, interest exposure and tax; and
- Historic valuation: Analysis of the company`s valuation relative to its own history as well as the history of its peers and the broader market.
Ultimately, 8IP is seeking to determine the company`s sustainable RoE over time, to quantify the impact of Delta and to understand if its shares are mispriced.
4. Portfolio construction and investment
The portfolio is then constructed from the investment team`s high-conviction ideas. Consideration is given to:
- Risk/reward: The return potential of the stock relative to the potential for loss;
- Position size: The weighting of each stock as determined by the level of conviction in the sustainability of RoE and the level of mispricing; and
- Execution: Ensuring trades are conducted efficiently and in a cost effective manner. All trades are subject to pre and post-trade checks to ensure they comply with investment guidelines.
5. Monitoring and adjustments
The investment team regularly reviews securities and maintains regular contact with company management. A stock may be sold if it becomes overvalued, its fundamentals change or a more attractive opportunity arises.