Optimal Investment Approach

Overall Philosophy

Optimal adopts an absolute return approach to investing, allowing the investment manager to protect (or hedge) the portfolio from downturns and to capitalise on identifying companies with poor prospects by selling short these stocks. This not only controls risk but adds value. The funds' goals are to produce capital gains for investors whilst preserving these gains in market downturns.

Optimal are best characterised as fundamental investors who maintain a value bias and undertake rigorous bottom up analysis. The approach is supplemented with views on the macro environment as well as other technical and qualitative indicators.

The same investment approach is used across all funds to produce strong returns and minimise capital losses.

Success in Individual Stock Picking

Optimal has a proven track record at picking stocks that outperform the leading indices. Unlike conventional funds, we do not limit investors' returns by gauging performance against an index of stocks or by monitoring the portfolio's correlation to the index. The reason we reject such an approach is because it locks the fund into a return similar to the index, prevents the investment manager from protecting the fund's investments from a downturn in the market and precludes the manager from profiting by selling stocks short which it has identified as likely to decline in price.

The investment process is ongoing and dynamic with all positions under constant review.

Investment Team

The Optimal Investment Team has more than seventy years combined experience in investment management. The company has investment professionals on the ground in both Tokyo and Sydney so as to maximise the benefits of real-time investment opportunities.

Valuation Techniques

Optimal's Investment Team combines fundamental, qualitative information with the use of valuation techniques that identify the market expectations implied in a stock price. While it is important to identify good companies, the fund manager also needs to know "what is in the market" if investments are to be profitable within a reasonable time frame.

Our approach requires an understanding of the industry/ sector dynamics, the company's competitive position within their industry and how this is evolving, and also the strength of management.

To value the opportunities a range of processes are used as we believe that there is no one definitive method. Generally we focus on market multiples (looking at peer and historical relative ranges), discounted cash flows and return on capital analyses.

Investment Decisions

Investment ideas are generated from all investment staff. The origin of the investment decision may be from a company visit, news flow, broker analysis or other related sources (eg, screening, global events, technicals). The premise of the investment case is then discussed in detail with the portfolio manager and the rest of the investment team. This review process is designed to create a complete investment thesis covering all angles and benefiting from the entire teams' investment experience.

Following the review process, the investment decision will be made solely by the portfolio manager. Position size is evaluated having regard to the liquidity of the investment and also to its impact on the overall portfolio.

The number of stocks represented in the portfolios is limited to a number that can maximise performance and minimise risk. The team needs to understand and closely monitor changes both to the companies' business and to the share price, so the portfolios do not become too diversified.

Summary

Optimal's strengths as an investment manager are:

Strong and experienced investment team;
Professional staff located within the Asia Pacific region allowing it to access all relevant markets in real time;
Proven ability to link information with stock price and separate hype from substance;
Successful record in stock selection demonstrating an ability to limit downside and capture the upside;
Allocation of resources to ensure effective coverage across all fund strategies.