Robin Parbrook, chief investment officer, Pacific ex Japan equities, talks about Schroders' investment strategies and gives his forecast for the year How does Schroders differentiate itself from its rivals in the retail fund business in Hong Kong? What makes a fund manager is people, and I believe we have the best people in Hong Kong in terms of their experience, resources and long-term performance. We also avoid thematic investment and look through cycles at the long term, which means our target prices are based on what we believe companies are worth and don't change according to market sentiment. If sentiment turns bullish towards China stocks, for instance, we don't change our portfolio because suddenly the market thinks this is the most exciting thing since sliced bread. A big broker in Hong Kong has just published a research note on Hong Kong Exchanges and Clearing and changed its target price from $25 to $40. They claim to be doing bottom-up research and not to be making changes just because of sentiment. That kind of research is useless. The fair value of HKex has not changed 60 per cent in two months, and to me that broker is telling us the analyst doesn't know how to do his job. That suggests you avoid riding a wave of sentiment and are willing to underperform in quarterly growth rankings. Do your investors understand that? I am not completely disinterested in three-month performance numbers but, yes, we could at times underperform in the short term. Hopefully, however, as the Hong Kong market gets more sophisticated, most people will know they should be picking managers for the longer term. Frankly, I'm not interested in those with a focus of three months. Obviously it is for our marketing team to educate investors to look at the longer term, but most people understand that. Which global funds do you market to retail investors in Hong Kong? The key funds would be various balanced products for domestic pension funds, and on the retail side our Greater China fund, Hong Kong fund and various Asian funds. We aim to run them relatively conservatively to give good long-term sustainable returns. There could be short-term periods where we have underperformed because we didn't suddenly jump into Chinese property stocks, say, which may have trebled, though our fair values remained unchanged. How big is your research team, and how is it organised? We have one of the biggest research teams in Asia - 15 analysts with an average of 11 years of investment experience, and seven fund managers with an average of 12 years' investment experience. Most of the team has been together for a long time. The team is predominantly based in Hong Kong and Singapore, with two analysts in Korea, one in Taipei and a team in Sydney. The fund managers are split by geography. Those looking after North Asia are based in Hong Kong, and those looking after Southeast Asia are based in Singapore. Some of our analysts are sector-focused, in areas such as technology and energy, and the rest are organised on a country basis. So it's a mix of the two. And the method they follow to identify investment targets? Each analyst has a set list of stocks. Normally 30 is the maximum that can be researched with the degree of depth we require. Their primary objective is to come up with what they believe a business is worth today, having looked at its long-term prospects. They have some discretion with valuation methods. For instance, with property stocks we would use net asset valuations, for most manufacturing and consumer companies we would use a discounted cash flow (DCF), and for banks we look at sustainable return on assets versus price-to-book valuations. Would those discounts you apply depend on country ratings and macro analysis? We have an economist/strategist based in London and an emerging equities team, and they come up with a standard metric that each team should use in their DCF models, so everyone is working from the same free cost of capital. A small change in DCF can make a big change in a target price, so we would also look at three-year earnings growth, and analysts therefore have some discretion when coming up with target prices to say which method they have used. Some thoughts on the year ahead? It could be positive based on the likelihood that interest rates won't rise as much as they did in 2005 and oil prices won't double as they did last year. China's growth will remain strong, the US may slow but Japan and Europe could take up some slack. So tensions in the Middle East apart, it looks like quite a benign backdrop. Our worry is that everyone is assuming the 'Goldilocks scenario' (not too hot, not too cold, but just right) will continue - which means the market is quite vulnerable to disappointments. Among these could be higher than expected inflation and if things get seriously nasty in the Middle East. We have had three pretty good years for Asian markets and, while not extreme, valuations are looking quite high. Adjust for the cycle, and valuations don't look cheap. We're looking at this year as more a year of consolidation rather than of strong gains for Asian markets.