KYOBO AXA

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
Investment Universe

Macroeconomics
Top-Down
Asset Allocation

Decision making
NP Meeting
1. Bottom-up
2. Assessment of investment stock and
  selectionInvestment idea
3. Model Portfolio
4. Apply to each fund
AMC
Portfolio manager

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
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
- 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: 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

Research organization
- Economist
- Sector analyst
- Credit analyst
- Quants analyst
Modeling &
Simulation

Model Portfolio
Check mutual decision making

Macro

By Asset Class
Portfolio Manager
Investment idea

Investment idea
Market-based
Qualitative Analysis

Market 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

Research Coverage
Performance estimate
- 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.

Comparison with
relative attractiveness
Valuation
Decision of valuation
multiple

Valuation by analyst itself model and assessment of value price

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.