FEDERATED HERMES ASIA EX JAPAN EQUITY F GBP

Investment Process

The management team will invest in companies that are attractively priced relative to the quality of the underlying business and prioritises those where the potential for gains is greater than the risk of losses. In essence they find stocks that the market believes are lower quality and thus under-owned and avoid those higher-quality names which are trading at excessively high valuations. The process begins with an investment universe of around 18,000 names which are screened for liquidity and size. Another screen then looks for stocks which are priced attractively considering factors such as their five-year average return on assets. They also look for companies which can demonstrate consistent revenue growth and a high return on equity, combined with a recent earnings disappointment or negative news flows and hence an underperforming stock price. Aside from screens, ideas are also generated through around 200 meetings with management teams every year. Pines periodically produces a shortlist of 100 names which is shared with his analysts who determine which stocks will be actively researched. Potential ideas are presented at formal discussion meetings. Pines has the final decision on all holdings, with over 85% of ideas presented not being selected. Stocks are sold when they reach the team’s assessment of intrinsic value, the thesis has proved faulty, or a better risk/return opportunity emerges. The turnover of the portfolio is relatively high at between 40% and 60% per year. The fund’s biggest country allocation is to China, followed by South Korea and Taiwan.