e-fundresearch.com: In which market environment does your investment strategy deliver the best (relative) results?
Samir Mehta: In the past, the strategy has generated an attractive return profile, broadly keeping pace with rising markets but also outperforming at times of volatility and negative market returns. We would argue that this is a result of the emphasis on quality stocks. The strategy may underperform at turning points in markets or when there are sharp market recoveries. However, our allocation to cyclicals and turnarounds will aim to offset this.
e-fundresearch.com: To what extent does fund size impact the efficiency and effectiveness of your investment strategy?
Samir Mehta: At J O Hambro Capital Management, we are certainly conscious of the detrimental effects fund size can have upon performance, so we place a cap on the size of individual investment strategies. But capacity isn't a current consideration in this instance. The fund has only relatively recently celebrated its three-year anniversary, so there is plenty of capacity remaining.
e-fundresearch.com: How optimistic is your view into the future and what obstacles and challenges should investors be prepared to overcome in 2015?
Samir Mehta: We are broadly optimistic on the outlook for Asian equities in 2015. In simple valuation terms, Asia currently looks cheap relative to its history, trading at close to one standard deviation below its long-term average on a price-to-book basis. And it is beaten down Asian cyclicals rather than defensives where we see value at present. Furthermore, as I've mentioned earlier, the collapse in commodity prices is a huge plus for the region. Only occasionally have we seen a collapse of commodity prices of this magnitude driven by a supply side shock.
As for risks, besides the strong US dollar I would flag debt and capital misallocation in China as a potential challenge. China can either accept the sharp shock of unemployment and company failures that followed the 2007/8 western financial crisis, or it can prolong the agony by following Japan’s example. State-owned enterprise reform will hurt.
