Sophia Li

Interview & Company Profile

Sophia Li

First State Investments

Sophia Li is a Portfolio Manager at First State Stewart Asia, part of First State Investments.


Sophia joined the team in August 2009 and is responsible for providing stock ideas to portfolio managers, primarily in the Northern Asia markets. She is also lead portfolio manager of the First State Japan Equity Fund.


Sophia holds a Master’s degree in Statistics from Harvard University and a Bachelor of Science degree from Fudan University. She is also a CFA charter holder.

Q1. Please describe your investment philosophy, your firm history and how you invest.

We adopt the absolute return mind-set approach based on the pure bottom-up stock analysis with a 3-5 year time horizon. We seldom think about the index because the definition of risk to us is the permanent loss of client’s capital instead of volatility vs. the index. Our investment philosophy and approach goes back to 1988 when Stewart Ivory launched the Asia Pacific equity fund. We have a distinct team culture and investment philosophy that is unchanged in more than two decades.


The key to any qualifying investments is the quality of the company. To elaborate, first and foremost is the integrity and capability of the management and corporate governance. Moreover, we focus on the past track record, i.e. the things that have actually been achieved by the management teams and how they responded to the prior adversity, rather than wasting too much time wondering what might happen in the unknowable future. Thirdly, we like the companies with the growth sustainability and cash flow generative capability and preferably they are backed by the structural growth driver which might make the companies more resilient in the down cycle. Last but not least, there is nothing that we “must” invest and there are some things we tend to avoid, such as gambling, tobacco and commodity companies.

Q2. Please let us know where you find investment opportunities today. What is virtue of the strategy?

In terms of the investment opportunities in Japan, we have found the strong survivors which have a proven track record of growing throughout the multiple cycles, thanks to the innovative business model and nimble management. These companies will be the long-term winners to consolidate the respective markets. Secondly, there are a number of structural investment themes such as the factory automation, E-Commerce and auto electronics, where a number of Japanese companies have formidable competitive advantage even on a global stage. Thirdly, selected consumer companies and specialty private label retailers might turn out to be the good long-term investments as they expand overseas particularly in Asia-ex Japan where the number of middle class has been increasing with the strong consumption power and appreciation of Japanese culture and products. Last but not least, from the contrarian point of view, the companies with a strong niche in a low-growth mature market may well turn out to be better investments than the comparables in the exciting industries which attract the fierce competition.


For our investment strategy, the process starts with the intensive company visit program -- about 200 corporate meetings p.a. on average in the past 4 years. After conducting the proprietary research and frequent team debates, only the stocks with the highest conviction level can be made into the portfolio. Secondly what we do not own is as important, if not more, as what we own. The portfolio has virtually no exposure to mega banks, commodities or energy stocks. Thirdly, our expertise in Asia-ex Japan has provided us with an edge to understand the Japanese companies deeper since many of them have been gradually expanding overseas.


We are long-term, conservative investors, with as much of a focus on capital preservation as capital growth. Our goal is to deliver strong risk-adjusted returns to clients over the long term.

Q3. Please explain why you have decided to be a portfolio manager.

I enjoy the intellectual challenges and like to take the real responsibilities of each decision or judgment I make by having the tangible results measured transparently.

Q4. What is your belief as a portfolio manager?  What do you try to achieve and what would you never do?

Three points Client First; Not to be greedy; Have a passion for investments. As a team we always put our clients’ interests at the first priority. For example a number of Asian equity funds were softly closed years ago in order to protect the interest of existing clients thanks to the capacity constraint. This job to myself is more like a lifetime hobby/passion than a career. Being a portfolio manager is like attending an endless marathon full of stress and surprises on the way. Without the genuine passion backed behind, we could never enjoy and perform well. I derived so much fun from getting the exposure to various industries, meeting the management and at last finding the best investments. There have been surely mistakes from time to time but each one provides valuable lessons for me to reflect in the future.


In the next 3 years, I will focus on establishing a consistent track record of Japan equity strategy and a team around. Hopefully in the next 10 years we can build the Japan equity fund into a strong franchise under First State Stewart. What I will never do is to deviate from our investment philosophy and eye on the short-term profit at the risk of losing client capital.

Q5. How best would you protect clients assets?

This is directly linked to our investment philosophy and style. We invest our client’s assets in the companies with a strong franchise and high earnings sustainability, run by the qualifying management with a strong sense of stewardship, finally with an overlay of reasonable valuation. Our culture is flat and encouraging the team members to challenge each other since everyone is a generalist. Investment decisions are made by respective lead managers after the in-depth company analysis and constant team debate. Last but not least, a larger part of our remuneration is deferred for 3 years and invested in the team-managed products to be in alignment with client interests.

Q6. Please recommend your favorite books on investments, and the reasons you favor them.

My favourite investments books include Money Masters of Our Time by John Train, Common Stocks and Uncommon Profits by Philip Fisher and One Up on Wall Street by Peter Lynch. Money Master gave a unique summary of the investment style of the top great investors. The two latter books talk about the investment style and the way of analysing companies by two long-term investors whom I share the similar belief with.

Q7. Please recommend any media source (newspaper, journals and website) you check on a regular basis.

Financial Times and Asian Nikkei Review.

This article originally appeared on November 1, 2016. Any views presented in this article are as of such date and are subject to change.
This article and the information provided therein are not a recommendation to purchase or sell any security, nor are they intended to constitute the marketing of, or a solicitation for investment in, any investment product.

Company profileInterview

First State Stewart Asia is an independent investment management team within First State Investments. As at 30 September 2015, we manage US$20.6 billion across a range of small-, mid- and large-cap Asia Pacific equity strategies on behalf of institutional and wholesale clients globally.


With the investment members of 15 based in three offices, including Hong Kong, Singapore and Edinburgh, the team focuses on fundamental analysis to construct high-conviction portfolios using a bottom-up approach. There is a strong emphasis on high quality proprietary research, with more than a thousand direct company meetings conducted a year. Through these meetings, our objective is to find quality companies with strong franchises and proven management - companies that can be held for many years - while ignoring any short-term market ‘noise’.


We are long-term, conservative investors, with as much of a focus on capital preservation as capital growth. Our goal is to deliver strong risk-adjusted returns to clients over the long term. As a result, the team - with an absolute return mind-set - has recorded a substantial track record as a specialist Asian equity manager. Although this prudent investment style may lag in strong liquidity-driven or momentum-led markets, our approach has consistently produced long-term outperformance.


Our research coverage of Asian companies has often highlighted Japanese companies as industry comparable or as business partners. As some of our regional funds and client mandates have the flexibility to invest outside the geographical borders of Asia Pacific, we have been invested in Japanese companies for some time (our first investment into a Japanese company was made in 2011). We follow the same investment approach with Japanese equities as we do for all our Asia Pacific equity funds, namely with an absolute return mind-set and an eye on the long term.


In our view, companies that are able to deliver earnings growth through multiple cycles are a more attractive investment proposition than companies that haven’t been tested over long periods of time; those that fared well despite adverse conditions should be more likely to do better when the Japanese economy revives.


When researching companies, first and foremost, we look for management teams who are focused on innovation, profitability and growth, with an open mind towards change, and with good corporate governance. Secondly, we focus on companies with a distinct competitive advantage, high earnings visibility, a good track record and with a strong balance sheet and strong cash flows. Last but not least, we prefer companies with structural, long-term growth drivers that should prove more resilient in a down cycle.

Sophia Li

November 1, 2016
by Investment in Japan