Japan Equity High Conviction

Investment Approach

Our Japan Equity High Conviction product aims to provide stable excess returns by investing in stocks that will achieve better earnings than market expectation and as a result consistently investing in the appropriate stocks for the market environment in a timely manner, ahead of the economic cycle.

A major competitive advantage of the Japan Equity High Conviction investment process is its flexibility to invest in any type of stocks, style biases are a product of our stock selection process. This flexible approach is a fundamental component of the strategy and one of the major differentiating factors in terms of our competition. The bottom-up approach to stock selection, with no restrictions on the proportion of growth or value stocks held in the portfolio, allows for an embedded flexibility for agile portfolio rebalancing to respond quickly and effectively to market conditions within a robust risk framework.

We believe that the application of this approach into a high conviction stock portfolio, of approximately 30 stocks, allows a deeper level of understanding, including ESG factors and stock specific micro leading indicators, of the stocks held within in our portfolio. We are confident in our ability to generate alpha without taking undue risk using this approach.

Investment Philosophy

Based on observations in the market, in the Japanese equity space, we believe:

(1) There is no factor investing technique that is always effective in terms of alpha generation. This means a portfolio betting on particular factor(s) does not always generate sufficient alpha.

(2) In order to achieve continuous alpha generation, portfolio managers must consistently invest in the appropriate stocks in a timely manner, ahead of the economic cycle.

All companies have one or more reliable Micro Leading Indicators that enable investors to project their near-term earnings.

• Changes in the indicators are shown before the macroeconomic cycle enters the next phase.

• Furthermore, micro leading indicators improve/deteriorate at different timings by industry and company.

Within our process, we define Micro Leading Indicators as both quantitative / qualitative data directly linked to company earnings which we can utilize to suggest future earnings momentum.

By understanding what drives these Micro Leading Indicators and projecting how they are likely to change through rigorous research and supply chain analysis, portfolio managers can construct a portfolio that agilely adapts to different economic and market cycles.

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