We will adopt an equity long/short investment strategy to capture the growth in China. Also, we will use instruments such as derivatives to help generating returns under various market conditions. Our goal is to create stakeholder value and achieve consistent risk-adjusted return. The bases of our selection of stocks and companies are:
We will go through our strict selection process and robust risk analysis before making any investment decision. Listed below are the steps of our investment process:
1. Investment idea generation.
2. Fundamental analysis.
3. Fundamental risk analysis.
4. Technical analysis.
6. Continuous monitoring.
The diagram below illustrates our investment analysis framework.
Stock Selection Process
In our selection process, different themes will be taken into consideration:
- companies/industries with earnings growth highly correlated to GDP growth.
- companies/industries that benefit from government policy implementation.
- companies/industries protected by high barrier of entry.
- companies with supernormal profit and revenue growth outpacing the increase in costs.
- products/services of which supply and demand are in a disequilibrium.
To manage risks in an effective manner, we will strictly follow a set of procedures:
- monitoring the 10-day Value at Risk (VaR) generated from Monte Carlo simulation on a daily basis.
- restriction on investing in illiquid stocks or markets.
- restriction on investing in companies with market cap below a preset threshold.
- a hierarchy of stop-loss limits imposed on the portfolio and individual stocks.
Hedging to balance return and risk:
- use of derivatives such as futures and OTC options to manage portfolio volatility.