With 12 years at Deutsche Bank under his belt, a stint managing money for the Packer family and a successful term at ING Investment Management, Gian Pandit arrived at AMP Capital Investors last November with high hopes and high expectations.
As senior portfolio manager in AMP’s Fundamental Equities team, and as manager of the $100-million AMP Australian Equity Concentrated Fund, Pandit’s skills are on full display. With a portfolio of no more than 35 stocks in the concentrated fund, there’s nowhere to hide if a pick goes awry.
Not that Pandit is concerned about his ability to perform, but he’s quick to stress that the engine room of the fund’s alpha generation is the nine analysts employed in the fundamental equities team.
The information advantage
Pandit says that to understand how a fund is likely to perform in the future, investors must “look into the process and the philosophy of the fund”.
“Our philosophy is that we scrutinise all aspects of a company’s fundamentals to derive earnings,” he says.
“This is the important point. There are three questions our analysts look at: Is a stock cheap or expensive? Are earnings going to surprise or disappoint? And are earnings reflected in the stock price currently?
“We’re trying to get insights into earnings that are not reflected in the price. That’s the key – that’s the information advantage that we’re trying to drill into.
“They come up with conviction scores and price targets for the portfolio managers.”
Pandit says 80 per cent of analysts’ time is spent meeting customers, looking at “the full industry chain and looking at the company”.
“The analysts do the rigorous, fundamental bottom-up work that all the portfolio managers in the fundamental group rely on.
“Let’s be clear. That’s the platform – the bottom-up fundamental analysis.”
“Within our process we have 40 per cent as a conviction score that the analysts put on a stock. That conviction score is between plus-three and minus-three – plus-one being 10 per cent outperformance over the index, plus-three being 30 per cent outperformance over the index. So that’s 40 per cent of the process.
“Another 20 per cent is the analysts putting a price target on that stock. The price target is over a 12-month time horizon; the conviction score is over a shorter time horizon of six months.
“So 60 per cent of our process is fundamentally driven by the nine analysts. Plus we have a 20 per cent ESG [environmental, social and governance] score, which is very, very important and which is, again, fundamentally driven by an analytical team.
Bottom up and top down
“So you can say that 80 per cent of our process comes from due diligence, [that is] bottom-up, rigorous work. However, we also have 20 per cent as a momentum score and that’s our proprietary model.”