The stock selection process is based upon four pillars: theme, value creation, valuation and momentum
Theme: We look for long-term trends within the TMT (telecom, media and technology) universe to identify the stocks that are best and worst positioned for changing industry trends. The TMT sector is characterised by rapid change which benefits certain business models while being disruptive for others. Understanding the industry themes and trends is a critical part of our investment process and forms the basis for the screening of stocks.
Value creation: After the screening process, we look at the value creation potential. At the core of this process is management evaluation. The key parameters we are looking at are management track record, board track record, relative scale within the industry, barriers to entry, product demand, input factor, scarcity and inventories.
Valuation: The focus is on capturing future price directions by identifying value early. E.g. we will occasionally choose long stocks that have unfavorable trends or poor historical value creation if we identify deep value that can be realised through future changes in management, mergers, acquisitions or a change in capital allocation.
Momentum: We carefully monitor short-term earnings momentum and appurtenant market expectations. Certain companies and sectors also exhibit strong price momentum which impacts our entry/exit strategies.
Through modelling the whole value chain within the TMT sector, we sometimes find discrepancies between our own expectations and the market expectations. If we see satisfactory reward in relation to risk, we will make adjustments to our portfolio. As such situations often create high volatility, we take advantage of that to find good entry points for our long- or short-term positions.
