Investment Approach

Overall Philosophy

Optimal adopts an active approach to investing whether in hedged or unhedged investment mandates. Absolute return mandates allow the investment manager to protect (or hedge) the portfolio from downturns and this can include short selling companies that have been identified as having poor prospects. 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 is best characterised as a fundamental investor who maintains a value bias and undertakes 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. In rising markets, this stock-picking success is best captured with fully invested portfolios, but we prefer not to limit our investors’ returns by gauging performance solely against an index of stocks or by monitoring the portfolio’s correlation to the index. We believe it is important to have a discussion about the suitability of being always fully invested because in poor market periods, such an approach locks the fund into a negative return similar to that of the index. It prevents the investment manager from protecting the 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 enormous experience in investment management in this region. The company has investment professionals on the ground in Australia and Japan 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 of the investment team. Investment decisions may originate from a company visit, general news flow, broker analysis or other related sources (eg, quantitative 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, the stock price characteristics and its likely 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, and to ensure that portfolios do not become too diversified and unfocused.

Summary – Optimal’s strengths as an investment manager are:

  • Strong and experienced investment team;
  • Investment professionals  located in Japan and Australia allowing it to access all market information 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.