Scottish Oriental Smaller Cos. Trust (LON:SOST) aims to generate long-term capital growth by investing in a portfolio of small-cap Asia ex-Japan equities. Vinay Agarwal is the interim lead fund manager while Wee-Li Hee is on maternity leave; he is assisted by Martin Lau, Scott McNab and the broader First State Stewart Asia team. Stocks are selected on a bottom-up basis, with a view to preserving capital on the downside as well as achieving capital growth. SST has significantly outperformed the peers and the MSCI AC Asia ex-Japan and MSCI AC Asia ex-Japan Small Cap indices over both five and 10 years.
Investment strategy: Bottom-up stock selection
The First State Stewart Asia team adopts a rigorous fundamental investment process aiming to select stocks with quality management teams, strong financials and reasonable valuations. Meeting with company managements is a key element of the investment process. Bottom-up stock selection means that sector/geographic exposure may be meaningfully different from the benchmark. Most of the portfolio is invested in companies with a market cap of less than $1.5bn, although up to 20% may be invested in larger companies with a market cap of up to $3.0bn (at the time of first investment). A gearing facility of £20m is place, but at end-September 2016 SST had a net cash position of 6.3%.
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