Q:  What is Aberdeen’s investment philosophy? A : Our investment philosophy is consistent around the world. The philosophy has three key elements. The first and most important is that in the long term we believe share prices will reflect company fundamentals. Secondly, we view risk as investing in companies with poor quality businesses and/or holding expensive companies, which means we tend to think of risk in absolute terms rather than benchmark relative. That means we tend to be benchmark aware but not driven by the benchmark. Thirdly, we are also strong believers in the collective wisdom of team-based approach in our decision making, which we believe brings both perspective and in-depth knowledge. We do not assign individuals restrictive coverage of stocks and sectors, but instead encourage cross-coverage, so that we have a fresh pair of eyes evaluating companies. This reduces biases and keeps our perspective fresh. Those are the essentials of our investment philosophy. Q:  How does your investment strategy help you to narrow your investment focus? A : The investment strategy consists of three very straightforward steps. The first one is the quality step, which basically gets down into companies’ fundamentals, looking for businesses that we like, and creates our universe of about 300 companies. Step two is how we whittle down that investable universe through valuation, businesses we like whose stocks are attractively priced. Step three would be how we build portfolios, having done the fundamental work around the quality and valuation considerations, taking into account diversification. Q:  What valuation metrics do you use? A : We use basic valuation metrics .We see our holdings twice a year and that means at least twice a year we build and review new earnings models for companies, which concentrates on revenues, operating and net profit and free cash flow generation. The type of valuation metrics that we use depends on the sector or industry that the company belongs to. Certain valuations metrics are more useful and suitable for certain industries, but every industry will have a metric that is apt for it. Once we have those valuations in place, we then obtain additional global perspectives on the companies from the work Aberdeen’s different equity teams across the world have done on similar companies and industries. As the world economy becomes more globalized, and companies compete across borders, this comparison is useful to broaden our perspective outside of the local region. When we are valuing companies, a big part about the valuation thought process is to focus on the downside and to make sure we have “valuation comfort”, and that the risks are fully reflected in the price. We also like to use conservative multiples to ensure that the company can survive an earnings disappointment as well as a very tough cycle. Q:  What is your research process? A : We will never invest in any stock without first having met with the company and producing our own detailed internal report. This report is on a standardized template with financial data, analysis and textual content describing the company and its situation. The bottom-line is we want to find companies which are profitable and are going to be profitable. So they have to have attractive businesses and have the infrastructure such as management and track record, suitable levels of debt and so on, that will keep it on track. Every investment in our portfolio has to meet our quality criteria. The basic five-touch points in terms of quality would be the business prospects and the company strategy, how clearly we understand the business franchise, how clearly management sets out objectives, and how well they execute on it and how well they manage through the business cycle. We regard contact with the management as a very important part of our relationship with the management team. Thirdly, we concentrate on the quality of the financials, the strength of the balance sheet, whether debt levels are appropriate to the business model, whether they generate free cash, whether they have a record of growing shareholders’ wealth. These are the key financial characteristics that we think about with any company regardless of its sector. Fourth, we also look at the company’s commitment to shareholder value and the transparency of its financials. As buy-and-hold investors we consider ourselves to be owners of the company and we expect to be treated well as minority shareholders. We pay a lot of attention to the proxy that comes up once a year in order to gain confidence that we, as investors, are being adequately represented within the company and that our clients’ money is being looked after in a way in which we feel comfortable. So, those are the basic quality criteria and if a company failed that, then it wouldn’t get through to the next stage of the process, which is considering the valuation of that company. Q:  Are you a growth investor or a value investor? A : We believe that growth and value are just two sides of the same investment coin. Combined, investing in value and growth, leads to a sensible core approach. Value stocks are attractive because when stocks of good businesses are so cheap, downside is very limited that over time upside should come. Growth stocks are attractive when the stock does not fully reflect the rapid rate of business growth, and how much bigger and more profitable the company will be in the future. We differ from a growth investor by being more valuation sensitive, the higher the valuation, the less likely we are to continue to hold on to the growth stock. That doesn’t necessarily mean we don’t hold growth companies in the portfolio. We’ve got around 18% or so in technology companies which are more growth-type companies, but we just apply a valuation test to those growth companies. Q:  What is your portfolio construction process? A : First and foremost, our goal is to find the right stocks of the right companies. Secondly, we need to figure out how to rate those companies to build a portfolio rather than just a random collection of companies. From a list of companies we like, we build a sensible model portfolio of a diverse mix of businesses. While we also consider correlation of stocks with each other, our primary consideration is that their underlying businesses are a diverse mix. After all, we believe that the businesses will ultimately drive the stocks. The diversity of businesses will help the portfolio achieve a sensible balance. The long term performance of the diverse collection of businesses will be positive, but we are not overexposed to any one single driver in the shorter term. The portfolio is built on a benchmark-cognizant type of framework rather than as a benchmark relative portfolio. It will develop biases and tilts within it over time, which are intentional and purposeful. In essence, the way we introduce a company into the portfolio is by starting with a position size of 1% or 1.5% and working that up or down through time based on how more or less attractive the stock becomes. The majority of turnover in the portfolio is adding to existing positions when share prices get weaker, or top slicing positions when valuations get excessive. What we are continuously checking for is to make sure that the investment case isn’t deteriorating, that it is getting stronger and if valuation is good enough, we can add to the position. But if it is deteriorating and the competitive advantage of the company is falling away, then that would be one of our sell triggers and the company would be exited from the portfolio. If there is a new candidate that is on our watch list, then that would go into the portfolio. Q:  What are the risk control measures in the fund? A : Our first and primary risk control is the thorough due diligence work than leads us to buy what we believe to be good quality businesses at attractive prices. The aim of this is to minimize the avoidable risk inherent in vulnerable businesses and expensive stocks, both of which often lead to poor investment returns. Our second risk control is to ensure the portfolio overall is properly diversified. Not simply by having a long list of stocks, but more by making sure that our stocks have a diversified range of drivers in their underlying businesses. By not buying rotten eggs, not overpaying and making sure our eggs are not all in one basket, we reduce the overall fundamental risk in the portfolio. Our independent risk management department also measure statistical risk data and we monitor these closely. However we view this as a common sense check and a secondary risk control to the above.