– Jing Sun, PSigma Asset Management: “We focus on shareholder value creators with long track records of growing cash earnings and dividends in good times and bad”
Jing Sun, investment director and fund manager for the PSigma Global Equity Fund at New York-based Centre Asset Management, says the fund, launched last June, focuses on the fundamentals of wealth creation and destruction akin to the way a traditional, long-term-focused corporate financier looking at all aspects of the business, including operating condition, risk profile and valuation, would assess it.
GFM: What is the history and background of your company, principals and funds?
JS: The PSigma Global Equity Fund is a UK-authorised unit trust managed by New York-based Centre Asset Management under a sub-advisory agreement from PSigma Unit Trust Managers.
Centre focuses on US and global equities in relative and absolute return products in sub-advisory mandates with financial institutions and professional investors. It is 63 per cent owned by Sanlam International Investments USA, an indirect subsidiary of the South African-based Sanlam financial services group.
In 2009, PSigma Asset Management made a 25 per cent minority equity investment in Centre, which was formed in December 2005 and up to then was wholly owned by James Abate. The firm then changed its name to PSigma Asset Management (USA), but in September 2010, Sanlam took a majority holding and PSigma Asset Management divested its stake in the company, which reverted to the Centre name.
PSigma Unit Trust Managers, established in 2002, is the operator of six UK authorised collective investment schemes. It is wholly owned by PSigma Asset Management, which was formed in January 2007 and is a 50:50 joint venture between the Punter Southall Group with Bill Mott, Ian Chimes and Graham Fuller.
The managers of the PSigma Global Equity Fund are James Abate and myself. James, who has 20 years of investment and corporate finance experience, formerly managed the Credit Suisse Transatlantic Fund and was responsible for the bank’s US Select Equity Strategy, which included various institutional separate accounts as well as funds sold in other countries. He then joined GAM as US investment director and fund manager for the US-distributed and offshore Ucits GAM American Focus Funds as well as being responsible for institutional separate accounts following the same management style.
Before becoming investment director and global equity fund manager at Centre, I was a vice-president and senior investment manager for global equities at ING Investment Management, having previously been portfolio manager of global equity fundamental long/short strategy at Trigram Capital.
The fund’s investment objective is to achieve long-term capital growth by investing primarily in equities in any economic sector and admitted to trading on stock markets anywhere in the world. The strategy is large cap-focused and uses a bottom-up fundamental stock selection process. The investment approach is rooted in differentiated economic value added-based analysis, which yields a more accurate picture of intrinsic value.
Our framework focuses on the fundamentals of wealth creation and destruction akin to the way a traditional, long-term-focused corporate financier looking at all aspects of the business, including operating condition, risk profile and valuation, would assess it.
In the shorter-term, market excursions from the reality of corporate managements' ability to create or destroy wealth during a company's profit cycle provide investable opportunities. Our approach seeks to capture excess returns once the stock mispricing converges with the company's true intrinsic value.
GFM: Who are your main service providers?
JS: Bank of New York Mellon (International) is the fund administrator and registrar, HSBC Bank is the custodian and BDO is the auditor.
GFM: What is your distribution strategy and targeted client base?
JS: PSigma focuses on third-party distribution through discretionary intermediaries, private banks, wealth managers, life assurance companies, stockbrokers and IFAs.
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
JS: We have seen very little impact. While redemptions did increase at the beginning of 2011, by year-end fund sales had increased significantly.
GFM: Please describe your investment process.
JS: Our competitive advantage is driven by our differentiated economic value added-based investment analysis, which provides deep insight into fundamentals of shareholder wealth creation or destruction, as well as through integrated portfolio construction and risk management.
We believe that a company’s ultimate worth is related to its propensity to create or destroy wealth in economic rather than strict accounting terms. Moreover, the company-specific cost of capital is a required component to the value today of that wealth creation or destruction. We use a disciplined four-step framework to select stocks, create and monitor the portfolio.
Step 1 is to determine an investable universe of stocks through a screen for acceptable trading liquidity and minimum market capitalisation. In Step 2, we determine a list of ‘good’ companies through a quantitative screen, using a proprietary analytical framework model to look for companies with sustainable or improving returns on capital, steady or decreasing risk (required return on capital), and suitable capital investment.
The analysis also identifies a focus list of 140 to 160 ‘good’ companies that may make ‘good’ stocks, whose current market valuations do not fully reflect future shareholder wealth creation. This fundamental assessment includes substantial qualitative research and review once the screening resource narrows down the investible universe and identifies likely buy candidates.
In Step 3, to construct the portfolio we determine the weights of each of the 80 to 100 stocks, based on alpha scores derived from expected appreciation potential, volatility, correlation, and the effect on the total portfolio. In general, we give a higher initial weighting to stocks that have both attractive and stable economic value added prospects. We overlay a systematic portfolio construction process to determine actual portfolio weights, enabling the risk/return, style and tracking error aspects of the total portfolio to be closely monitored for consistency.
Individual stock positions are limited to a 3 per cent ‘active’ weight versus the optimisation benchmark on the date of trade. The targeted annual portfolio tracking error of 6 per cent is used to limit sector over/under emphasis versus the benchmark. The overall objective of the portfolio construction process is to maximise exposure to the stock selection process while minimising active risk derived from sector/industry concentration as well as market timing and style risks.
Step 4 is to assess risk and sources of return for stop-loss adjustment and future decision-making improvement. Nightly reports tracking individual position stop-loss proximity and performance attribution are created and, if necessary, trigger action.
We use an integrated portfolio construction and risk management solution within the complete investment process. A third party (Barra) risk model allows style, market timing and sector/industry analysis control and management
GFM: What is your approach to managing risk?
JS: Risk within the global equity strategy is measured on a relative basis against the benchmark and peers. The key measures we analyse to measure portfolio risk are beta, alpha, volatility and Sortino ratio. Our firm was founded on the principle that a merging of fundamental stock selection and quantitative portfolio construction provides the best opportunity for achieving scalable, consistent portfolio management results.
Because stock selection in itself does not ensure risk-adjusted performance success, we integrate security selection with appropriate position sizing and, in absolute return-oriented products, exposure management. Portfolio construction seeks to eliminate unintended risks and focuses portfolio on alpha opportunity derived from stock selection.
GFM: How has your fund performed?
JS: Since its launch on June 20 last year, the fund has returned second quartile performance over three and six months within the IMA Global sector, according to Morningstar.
GFM: Are you looking at any particularly attractive opportunities right now?
JS: In the current environment of considerable uncertainty in the global economic landscape, we focus on bottom-up shareholder value creators who have long track records of growing cash earnings and dividends in both good times and bad, are in excellent competitive positions locally or globally in their respective industries, and are likely to be the main beneficiaries of good fundamental long-term economic growth and demographics in various parts of the world.
This approach is exemplified by the fund’s holdings in companies such as Apple, Google, Daimler, IBM, British American Tobacco, Samsung Electronics, and China Mobile.
GFM: How do you expect the economic outlook to affect the performance of your fund?
JS: We are cautiously optimistic about global equity markets. We think many of the risks facing equities have already been well discounted in the share prices of most leading blue chips worldwide, and see more attractive investment opportunities as the markets go through their current corrections based upon inexpensive valuations leading to asymmetrical return outcomes.
We continue to seek attractive investment opportunities in markets across the globe with strong longer-term fundamentals both on macro and micro levels. Overall, the recent equity market volatility has created opportunities to add to our collection of very high quality companies at attractive prices, which we believe will ensure continuing positive fund performance.
GFM: How do you view the environment for fundraising over the coming 12 months?
JS: We are confident that while economic growth is likely to remain anaemic, the environment is encouraging for fundraising throughout 2012.
GFM: How do you expect your business to be affected by current and proposed regulatory changes?
JS: We do not expect our business to be unduly affected by regulatory changes. The regulatory change we are currently focusing on is our response to the UK’s retail distribution review. Although not finalised as yet, the likelihood is that we will offer a share class with no initial charge and a 75 basis point annual management charge, with switches from ‘bid-to-creation’.
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