• Investment Philosophy
  • Investment Process
  • Risk Management Framework

Investment Process

Risk Management Process

Equity investment style

  • Investment Style

    Active investment aims at excess return versus market based on researching fundamental

    • Major revenue creation comes from investing in good company and asset allocation is considered as protective idea against market risk.
    • Discover an undervalued equity by bottom-up research, long-term investment
    • Decision-making support system by Quant model / Purse objective decision-making under team management.
  • Investment method.

    Team management pursues specialization by dividing role between analyst and fund manager.

    • Team Approach- Similar style fund is managed based on similar model portfolio.
    • Asset allocation under agreement between portfolio manager and analyst
    • Portfolio manager is responsible for fund management, valuation check, and providing investment idea.
    • Analyst suggests opinion about assignment industry and holding weight and investment stock in the industry by priority.

Process of equity investment

    • Value analysis
    • Quants analysis
    • Qualitative analysis
  1. Investment Universe
  1. Macroeconomics
  2. Top-Down
  3. Asset Allocation
  • Decision making
  • NP Meeting
    1. Bottom-up
    2. Assessment of investment stock and selection Investment idea
    3. Model Portfolio
      • Asset Allocation
    4. Apply to each fund
  • AMC
    • Asset Allocation
  • Portfolio manager
Compliance

Bond management style

Active management byactively using market inefficiency

    • Active Approach
      Permit a certain range of tracking Error in order to gainan excess return
      Making use of various sources of return: Duration, portfolio adjustment, short-term trading, selection of individual stock
      Position adjustment based on the market outlook
    • Passive Approach
      Minimize tracking error compared to BM
      Generating excess returns through the discovery and holding of relatively undervalued stock
      Shoulder Effect possible through Slight Mismatching
      Application of risk management according to the Market outlook
  1. We establish the principle of Active Management by actively using market inefficiency Apply Passive Approach based on the Client’s Needs

Bond management method

Team Approach + grant a certain amount of discretionary power to individual fund manager

    • Inducement of investment agreement by entire asset management committee
      Decision on MP through weekly/monthly interest rate prospect meeting
      Agreement in unity upon the duration in the fund => whether to lengthen or shortenduration
      Making a decision on direction after sufficient exchange of opinions
      Discretionary power of AP is permitted within a certain range
    • Separation of fund management
      Selection of fund managers in charge fitted to the characteristics of the fund
      Specialization of fund managers for each characteristics of the fund
      Make up for the weakness of mutual management (lack of responsibility)
      Main role of fund manager is not making a decision on the entire strategy of the fund but managing the fund itself
    • Decision on the direction of dealing with the fund duration/establishment of the strategy/ dealing method is made by Team Approach. However, each fund is managed by individual fund manager in charge for itsmicromanagement.
    • Also, maximize each manager’s capability by granting certain amount of discretionary power

Bond management process

  • Determine Benchmark
    • Forecast(expectation)
      • expectation on economic outlook/ interest rate
      • Sector forecast

      Meeting for asset management

    • Model portfolio
      • Target duration
      • Sector/Maturity composition

      Meetings for Model Portfolio

    • Valuation
      • valuation of the selection of each stock
      • Credit Universe

      Meeting on Model Portfolio

    • Actual portfolio
      • Duration/Portfolio, Trading
      • Trading

      Portfolio manager

  • Monitoring
    • Model portfolio
      • Target duration
      • Sector/Maturity composition

      Meetings for Model Portfolio

    • Valuation
      • valuation of the selection of each stock
      • Credit Universe

      Meeting on Model Portfolio

    • Actual portfolio
      • Duration/Portfolio, Trading
      • Trading

      Portfolio manager

    • Monitoring
      • Measure of performance
      • Factor analysis

System for decision making process

Establishment of the system for rational decision making in steps

STEP,Decision making process,List of factorsto be determined,Participants for decision making, Decision making period table
STEP Decision making process List of factorsto be determined Participants for decision making Decision making period
Standard setting Benchmark Selection of optimal BMand analysis on Scenario by clients Asset management committee, client’s Mandate When the fund is placed
Market Outlook Macro/Micro Outlook Economy/rates/yield curve outlook, Sector outlook Asset Management Committee management team/investment strategy part/ credit research part Monthly
Strategic asset allocation Model Portfolio Duration Target maturity or sector composition Asset Management Committee management team/investment strategy part/ credit research part Monthly
Investment Universe Valuation Credit Line individual stock Valuation or Bond Universe Credit research part management team Weekly Daily
Tactical Asset allocation Actual portfolio on bond MP adjustment Target Durationadjustment of individual stocks Meetings on investment strategy by investment management team/ investment strategy team/ credit research group Weekly Daily
Monitoring Measure of performance Performance measure and factor analysis relative/ absolute evaluation Investment strategy team/ risk management team Monthly Weekly

Rationalization of decision making by checks and balances among teams

Establishment of investment management process system
Checks and balances for asset allocation and PF composition, and ensure diversityof analysis
Distinctive R&R and Hierarchy in the Decision-making process/dt>
  • Define each member of the team and one’s job description by each team
  • Maintain the hierarchy of responsibility and authority in terms of strategies/management/administration in the team organization
Maintain balance and flexibility
Ensureflexibility by making a decision mutually through the range of discretionary power by Portfolio Manager with Check&Balance Portfolio management
Application of Strategy customized for characteristics of the fund
Separate the investment management group by asset Class, investment strategy, characteristics of fund to eliminate the possibility of applyinguniform strategies
  1. Research organization
    Economist
    Sector analyst
    Credit analyst
    Quants analyst
  2. Modeling & Simulation

    Model Portfolio
  3. Check mutual decision making

    Macro
    By Asset Class Portfolio Manager
  4. Investment idea.Investment idea Market-based Qualitative Analysis

    Model Portfolio
Compliance
  1. Market estimate
  2. Quantitative Analysis
    Quant Analysis Model
    Compose the investment model with effective factors for equity returns in 4 kinds of investment part.
    • Value : Judge whether the factor is undervalued or not in terms of revenue and capital.
    • Quality : Judge excellence of financial structure and stock stability.
    • Growth : Estimate growth in mid-long term with a conservative method.
    • Momentum : Measure returns estimate and the momentum which reflects change of stock price’s supply and demand
  1. Research Coverage
  2. Performance estimate
    • Quantitative Analysis
      Quant Analysis Model
      Compose the investment model with effective factors for equity returns in 4 kinds of investment part.
      • Value : Judge whether the factor is undervalued or not in terms of revenue and capital.
      • Quality : Judge excellence of financial structure and stock stability.
      • Growth : Estimate growth in mid-long term with a conservative method.
      • Momentum : Measure returns estimate and the momentum which reflects change of stock price’s supply and demand
    • Qualitative Analysis

      Carry out comprehensive stock analysis through adjusting analysis of diverse aspects and proper investment timing

      • Value : Is the undervalued factor reasonable in comparison with market? Is the undervalued factor possible to overcome?
      • Competitiveness : market power, Price power, Entry barriers
      • Growth engine in future : Does it secure source of revenue? Is a new business reasonable?
      • Investment timing : Quarterly performance flow, Able to increase.
  1. Comparison with relative attractiveness
  2. Valuation
  3. Decision of valuation multiple
  4. Valuation

Valuation by analyst itself model and assessment of value price

Compliance

Investment Philosophy

Value
  • Maintain consistent investment process through specialized quantitative/qualitative research
  • Manage a quantitative model based on value investment
Stability & Efficiency
  • Invest based on origin of excess return in mid-long term
  • Pursue maximization of stable excess return in limited tracking error (Pursue maximization of Information Ratio)
Risk Management & Transparency
  • Complement limit of quantitative mode under rapidly changing market circumstance by using qualitative research and Top-down model etc.
  • Honestly and sincerely manage by strictly applying standards of law, regulation, and internal control.

Investment Process of Portfolio

  • Complementary Relationship
  • Quantitative Research
    Definition of origin of excess return in long-term via quantitative factor
    Discover each effective factor on each origin of excess return
    Composite the optimized portfolio under appointed TE standard which comes from multi-factor model using excess return factor.
    Fundamental Research
    Analysis industry and forward and backward industry to overcome data error of stock consensus
    Eliminate non-quantitative intrinsic risk, which cannot reflect in quantitative model, in each business

Decision Making Process

Origin of excess return
Value

Invest the stock whose multiple is inexpensive.

Stability

Invest the enterprise whose financial structure and liquidity is good.

Contrarian momentum

Avoid the skyrocketing stock in short-term.

Revenue momentum

Invest the enterprise whose estimated revenue is increasing.

Growth

Invest the enterprise whose growth outstands against market and peer group.

  • Quantitative Analysis
    Analysis by historical simulation
    Check basic statistics
    Qualitative Analysis
    Analysis of factor performance & risk origin
    Check whether it has possibility of future sustainability through factor analysis for excess returns
    Correlation analysis
    Consider the factor having big correlation between factors does not duplicate.
    Check whether it is suitable or not in terms of active investment idea
    Monitoring
    Monitor origin of excess return by factors and risk consistency
    • Judge origin of excess return, risk, and whether the factor has sustainability through fundamental/ quantitative factors and correlation analysis as not judge factors simply based on past return.
    • Establish team investment process by effectively using portfolio investment and research based on sufficient division human resource.