I previously wrote an article regarding the top-down approach in investment. Now let’s look at a contrary approach which is also much practiced by the local unit trust fund manager: the bottom-up strategy.
According to Investopedia:
The bottom-up approach assumes that individual companies can do well
even in an industry that is not performing very well. This is the
opposite of “top-down investing”. Making sound decisions based on a
bottom-up investing strategy entails a thorough review of the company
in question. This includes becoming familiar with the company’s
products and services, its financial stability and its research reports.
In short, a bottom-up investor focuses on selecting a stock based on the individual attributes of a company. Comparison of companies based on fundamentals; as long as the companies are strong, the overall macro economy conditions are of no concern.
Consideration of fundamentals of a company includes:
- low price-to-earnings ratio
- high book value
- future prospects, business outlook
- company management team
- market competitiveness
- relative valuation
- and many other considerations of the company’s performance
This investment approach is most suitable when the fund manager is close to his market – hence it is not appropriate to be used when investing globally.
Good investment selection for the bottom-up investors are those under-rated or under-researched companies that have the potential to unlock value in long term.
Example of local unit trust fund houses that practice bottom-up approach:
Alliance Investment Management
Mayban Investment Management Sdn. Bhd.
OSK-UOB Global Equity Yield Fund
RHB Unit Trust Management Berhad
More tips about unit trust investmnt:
How to monitor unit trust portfolio using Signal Invest
Everything about Unit Trust in Malaysia
The secret of investing in Unit Trust
Ringgit or Dollar Cost Averaging
What do I look for in a unit trust fund?
Are Unit Trusts Lousy Investment?