Strategies
Active Fundamental Equity
Saudi Equity Strategy
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Saudi Equity Strategy |
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Strategies
Active Fundamental Equity
Saudi Equity Strategy
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Saudi Equity Strategy
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The Riyadh-based team believes that fundamentals-driven, stock-specific investing when carried out within the context of broad Saudi Arabian macroeconomic themes can be successful in creating investment value for investors. Furthermore, the current investor mix between retail and institutional investors creates intrinsic price anomalies that can be a potential source of additional returns. The team believes that short-term pricing opportunities also exist as a result of a strong pipeline of under-researched, under-priced IPOs.
The team believes it can best exploit these anomalies by applying a top-down sector allocation and bottom-up stock selection approach. The team’s research process focuses primarily on key growth drivers, price and earnings dynamics, quality of management and its disclosure policies.
The team seeks companies it believes have strong prospects for earnings growth, are out-of-favour with the market or are undervalued, due to lack of research or misunderstanding by the market about a company’s assets or prospects for future growth. The team focuses on companies which possess strong growth prospects (minimum 10 to 15% EPS growth) and sufficient levels of liquidity, and are willing to pay a reasonable premium for higher growth and good quality management.
The Morgan Stanley franchise |
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The team leverages the resources of Morgan Stanley, including research, trading and risk management platforms, to conduct in-depth research and rigorous analysis, and to evaluate industry and business fundamentals. |
Top-down and bottom-up analysis |
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The team believes its integration of top-down sector allocation with bottom-up stock selection creates a portfolio of quality companies ideally positioned to benefit from economic growth and structural reform in Saudi Arabia. |
A locally based investment team |
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The Saudi based investment team consists of three investment professionals. The team has a deep understanding of the local market and culture. |
| 1 | Quantitative Screening |
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The team screens a universe of approximately 145 stocks using valuation metrics, earnings growth, return on investment, and liquidity. The result is roughly 90 investment candidates on which the team conducts in-depth proprietary fundamental analysis. |
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| 2 | Fundamental Analysis |
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The team applies a combination of top-down macroeconomic analysis and bottom-up fundamental analysis to the investment candidates identified by the initial quantitative screening process. |
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| 3 | Top-down perspective |
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The team uses in-house and external economic and industry specific research to focus their analysis on specific sectors and stocks which they believe will benefit from economic conditions, themes and industry trends both in Saudi Arabia and globally. |
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| 4 | Stock level |
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The team seeks companies that possess strong cash-flow generation and high return on invested capital. The team evaluates management quality/business focus; balance sheet strength; the business model; product competitiveness and the growth drivers of the business. Limited sell-side research makes the team’s proprietary research—which includes analytical and forecast work as well as on-site visits and management interviews—paramount. |
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| 5 | Risk management |
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An integral part of the investment process, conducted at stock, sector and portfolio levels. At the stock level, the team focuses on developing a comprehensive understanding of company’s fundamentals to minimise exposure to high risk or speculative stocks. At a sector level, the team monitors sector and industry allocations, with benchmark deviations confined to a defined range. At a portfolio level, tracking error is closely monitored. |
