Our diversified portfolios provide a professionally managed, comprehensive investment solution. We combine our proven capabilities in equities, property securities, cash and fixed income with a strong strategic and tactical asset allocation process.
Our diversified investment philosophy is based on two key principles:
We believe that market prices tend to over and under-shoot fair value. Given this, a focused and active approach to asset allocation is likely to add value for investors over time.
We believe that through fundamental research we can select quality, well priced securities. This minimizes the risk that investments will not perform well and is likely to add value for investors over time.
We use both quantitative and qualitative analysis to make investment decisions. Qualitative input is critical to understanding the characteristics of our market and active exposures. It is also important for understanding structural changes over time which may mean that historic relationships have become less meaningful.
The objective discipline of quantitative analysis is also important.
Analysis of historic returns allows us to test portfolio allocation changes objectively.
Forward-looking risk budgeting allows us to test whether the beliefs embedded in our assumptions and portfolio allocations are consistent. It also allows us to view portfolio risk and return drivers and the contribution of each to overall portfolio risk and return.
We seek to construct portfolios that are as broadly diversified as possible, without detracting from the end outcome to investors. However we recognize that diversification between a range of market exposures and active risk exposures is not sufficient to protect against significant down markets, so we take a tactical asset allocation approach (TTA).
Unlike standalone TAA, our goal is not pure alpha generation. Rather, our goal is to supplement long-term returns and to manage risk. By managing risk, we mean to reduce exposure to assets when fundamentals are poor, or take advantage of market conditions when favorable. Our TAA activity is focused on asset classes where we believe we have a strong competitive advantage.
Our disciplined approach to equities is based on bottom-up stock selection focused on quality and value. Our in-house fundamental research is combined with experienced and prudent portfolio management.
Our investment philosophy is to invest in quality companies at attractive prices. As we select shares based on stock-specific fundamentals, we are commonly referred to as an active ‘bottom-up’ fund manager.
We seek to buy shares at levels where the market price is below what we perceive to be fair value given a company’s fundamentals and market conditions. We tend to invest in stocks exhibiting 'value' characteristics such as low price-to-book values, low price-to-earnings ratios and higher yields. As a result, our investment in various stocks and sectors is likely to differ from the market, and thus the benchmark index.
Our bottom-up stock selection process involves four steps.
Step 1: Initial stock identification
This step identifies a potential investment opportunity. Our analysts conduct a quick review to decide whether the opportunity is worth further investigation.
Step 2: Stock selection process
After a stock has been identified as a possible investment opportunity, it must pass our stock selection criteria. This is the most extensive and important step of the process. If any existing or potential company, fails the criteria it is excluded from the portfolio.
We analyze across four criteria:
• Sound management - We search for companies that are managed by experienced, clearly focused and prudent people.
• Conservative debt levels - Although companies with high debt levels are often favored during share market booms, our focus on minimizing risk restricts such companies from being included in our portfolios. These companies are often the first to be adversely affected during economic slowdowns.
• Quality of business - We assess a company’s ability to produce established products and services, the nature of the industry sector in which the company operates, market share and competitive factors such as barriers to entry.
• Recurring earnings streams (in the case of industrial companies) - We seek to invest in companies which are likely to produce a recurring earnings stream given normal operating conditions.
Step 3: Portfolio construction
Each analyst has their own universe of stocks which have passed the stock selection criteria. These are ranked on a scale of 1 (best) to 5 (worst) on the basis of expected performance and value. These rankings are then used by the portfolio managers to construct our portfolios.
Step 4: Portfolio Maintenance
We monitor our portfolios to ensure that the stocks are continually subjected to the disciplines of our process. This is an integral part of the process and forms part of our analysts’ daily activities.
As a result of our rigorous stock selection process, Cunningham Mutual is one of Hong Kong’s leading funds management companies, highly recognized for its management of equities.
Cash and fixed income
We offer a wide range of established institutional cash and fixed income funds. We also specialize in creating tailored portfolios ranging from transactional cash to longer-term strategic cash and fixed income.
We actively trade the portfolio to benefit from relative value across the credit landscape, within the capital structure and along the credit curve. We believe active trading enables us to deliver excess returns while better controlling risk.
The key risk in credit investing is the likelihood of default. We believe that the risk/return trade off is superior in highly-rated, transparent securities. We focus our research on assessing the risk than an investment will not perform well and we hold highly diversified portfolios. We are also likely to perform better than our peers in periods of stress.
We believe in a disciplined approach to managing money. We have successfully applied the same investment approach for over ten years, rigidly adhering to our credit scoring process, relative value assessment, quality filters and sell discipline.