• 07/05/2016

Pinebridge Soon’s human deduction approach key to risk mitigation for small caps

A Systematic Approach through The Pacific Rim

By Paul Lees

PineBridge likes to pause for breath and put things in perspective. This approach has helped it earn two Best-in-Class awards in the Professional Top 100 categories for India and Asia ex-Japan Small/Mid-Cap Equities.

“India offers many investment opportunities with a large number of companies expected to benefit from the high rates of economic growth in this evolving market,” explained Elizabeth Soon, Portfolio Manager. She continued, “To capture this growth at a company level, we follow a bottom-up stock selection process using fundamental research. Our approach is designed to systematically identify companies with strong business franchises, run by excellent management teams and available at fair valuations, to generate sustainable and predictable investor returns.”

A Viable Strategy

 Soon also noted that PineBridge has a robust investment process based on years of research experience in analyzing companies. This helps the portfolio to sustain itself during all phases of the market and is better able to cope with volatility as the firms it invests in are among the most robust. A strong investment team on the ground in India, which scans the marketplace for mispriced opportunities, works in close collaboration with the rest of its global investment team to allocate assets.

Moving on to portfolio risk, Soon commented that: “From our perspective, price behavior of stock or price volatility is not a risk. Instead, we see a drop in a share price as a potential opportunity. The risk for us, therefore, is a permanent loss of capital which comes from misjudgment of three factors namely business franchise, the management quality and its valuations. Plus, the uncontrollable, unpredictable effect of things such as inflation and tax treatment.”

“Secondly, our investment time horizon for holding a company in the portfolio also plays a vital role in determining the overall risk. If we were to buy a stock merely on the basis of news flow, with the intention of trading within a short period, which we do not, then the risk would increase,” she continued.

Soon concluded by explaining that: “These aspects of risk are covered in our robust and comprehensive equity investment process, which mitigates ad-hoc decision making and ensures discipline as no company can be bought in the portfolio if not researched or has been rated as a sell by one of our team.”

The Human Factor

Looking at the role technology plays in the stock research process and Soon observed: “No computer can replace what people can deduce,” then added, “most digital information is short-term in nature, so one needs to have a human intervention. This applies the right set of filters to determine what to take on and what to discard.”

“Equally important is our interaction with companies and consumers on-the-ground. For instance, over the last year, our team traveled almost 50,000 kilometers to get the first-hand feel of what’s happening on the ground.”

 A Non-Economic Event

A headline-grabbing event in 2016 was the Indian government’s decision to demonetize by withdrawing 500 and 1,000 rupee notes from circulation. In Soon’s opinion: “This was a ‘non-economic’ event, akin to banks replacing their customer’s credit cards when they are about to expire. The move gained an economic angle on account of delays in replacing old currency notes. We felt it was more of a social and governance re-engineering and there was no change in our portfolio or strategy due to this event.”

Aware but Not Constrained

Turning to PineBridge’s wider Asian strategy and Soon explained that with the Asia ex Japan Small Cap Equity Fund, she and her team utilizes a similar management approach to that of the Indian Equity Fund: “We also follow a fundamental, bottom-up research process to invest in companies. This means that we look at a firm’s individual merits, irrespective of whether it is present in the benchmark or not. We are benchmark aware but not constrained.”

“We believe that the benchmark is a backward looking construct, as the economies in Asia ex-Japan evolve. This means that companies are removed from the benchmark after significant underperformance, and an investor has the potential to lose out by tracking them.”

The Pacific Rim

When asked about the challenges Asia faces in 2017, Soon noted that: “There is a popular belief that Asian economies are only dependent on exports and therefore would be significantly impacted by the change in policies elsewhere. We neither deny nor agree with this completely.” She then elaborated: “If you draw an imaginary circle, with central Indonesia in the middle and include India and China as part of that circle, then you would realize that there are more people within that circle than outside of it. Therefore, the region by default has many opportunities for investors.”

Asia in Perspective

Soon believes that Asia is a big regional play and this is often an underappreciated fact. Companies in the area have significant domestic demands that, once again, offer many opportunities to investors: “Asian firms have also invested a lot in building technology and are many years ahead of their peers elsewhere. This strongly embeds them in the final product and supply chain. These companies should be able to weather out adverse implications at the global level if there were to be any.”


PineBridge also keeps an eye on Environmental, Social and Governance (ESG) issues: “From our experience, active standards of corporate responsibility, sustainable business relationships and robust risk frameworks are sound yardsticks for management integrity. This, in turn, is a key ingredient of a company’s long-term outperformance.”

“We spend considerable effort in analyzing a management’s history of capital deployment, treatment of minority shareholders and conservativeness of accounting methods, which play integral roles in determining our investment decisions,” said Soon.

Finally, Soon acknowledged the growing interest among investors for the company’s Asia ex Japan Small Cap Equity Fund: “This is good news for us, but recent inflows have caused the cash level to increase while we wait for the right opportunities to deploy into stocks.” BM



Paul Lees 撰文
























最後,孫瑩心提到,投資者對柏瑞亞洲(日本除外)小型公司股票基金的興趣日增:「這對我們來說是好消息,但最近的資金流入令基金的現金水平上升。待適當時機出現,我們會把現金調配至股票投資。」 BM