The buy discipline is based on the target price generated from our valuation models. A stock would be expected to have at least a 20% upside before it is purchased.

We would typically sell when a stock reaches our target price, although we do have some discretion if we believe the target price should be revisited or the stock is showing particular momentum.

The execution of sell recommendations and of an increase/decrease in weighting of a stock typically takes place on the same day as the recommendation, discussion and decision.

Q:  Do you keep a price target for these companies?

A: As mentioned, following a full analysis of the company, we will determine company value for the company and set our target price. Once the company has reached its target price, the research team will revise their analysis again.

We constantly revisit the investment case for any given stock in our portfolio, and if the investment thesis changes fundamentally, that means we need to revisit and possibly sell. If the factors on which we had built our convictions appear to have changed then we will sell the stock. We would also sell a holding if we felt there was no longer any upside on the valuation front.

Q:  How far does your investment horizon extend to invest in China - is it mainland China, or Hong Kong and Taiwan?

A: We invest in companies listed on either the Hong Kong or Singapore stock market. This enables us to invest in companies from Hong Kong, Singapore and China’s Mainland. By investing in Chinese companies through the Hong Kong market, we have no exposure to the Chinese domestic stock market. This market has performed very strongly, driven up by excessive liquidity trapped in China, and valuations are looking decidedly irrational. Currently, there is very little incentive for a Chinese investor to put money in the bank or in the bond market as yields are very low. The equity market is therefore attracting a lot of investment which is driving it up well beyond fair value. To ease upward pressure on this market, the Government has recently increased the quota for domestic investors to invest abroad. This is very positive for the Hong Kong market and we are already seeing strong inflows from the Mainland.

We also have the ability to invest in Taiwan but our investment bias is to profit from domestic growth in mainland China. Even our Hong Kong holdings are China–facing, with the majority of their earnings coming from Mainland exposure.

Q:  Can you give us one or two examples of stocks that you bought in the past, and how you found them?

A: In the Fund we have a large exposure to the consumer and energy sectors. One of our top picks in the consumer sector is a company called Ports Design Limited. It is a very high-end luxury brand in China. It is specifically focused on that demographic at the very upper end.

I visited their plant and met with their design team during my recent trip to China. They have done exceptionally well and this brand has widespread market recognition in China. With rising income and growing middle and upper middle classes, luxury goods are enjoying solid sales growth.

In China, more and more people are coming into the widening consumer base. As the effects of economic growth begin to trickle down, more and more of the rural poor are starting to make gains and family disposable incomes are beginning to rise, even at the very low end. We own Hengan International, a company that produces toilet paper tissues, sanitary products, and paper napkins. Hengan is well-placed at the lower end of the consumer market.

Q:  What kinds of risk do you monitor and what do you do to mitigate them?

A: We define risk in absolute terms. We consider risk within all our investments in terms of absolute loss, and risk is considered to be the potential of capital loss from our initial stake. We do not like to lose money even if relative outperformance could still be achieved.

Such a philosophy ensures a strict sell discipline and encourages a robust research and investment process. The Fund enjoys levels of diversification to counteract risk, particularly stock specific risk or industry risk.

Portfolio construction is determined foremost by our investment process and not by benchmark, although an eye is kept upon the benchmark and peer group, as a means to control relative risk. We use of an independent risk and reporting company, Portfolio Evaluation, who provide a detailed reports on a quarterly basis. These reports show risk and return analysis, attribution analysis and style bias. Risk is generally run at a tracking error less than 10% against the benchmark.

Specifically with emerging markets you have to be very careful in terms of liquidity as the market cap might be large (greater than $500 million for this Fund), but free flow might be quite small. I am only 100% comfortable investing in a stock when the liquidity is entirely consistent.