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Batterymarch Financial Management’s Curtis Butler and Ray Prasad, managers of the £72.9m Legg Mason Asia Pacific fund, pride themselves on a rigorous investment process that combines fundamental analysis with a sophisticated quantitative platform to evaluate and rank more than a thousand stocks every day. To date, this process has held up well, as the fund has managed to outperform its benchmark and peer group consistently since launch.

For the year to 29 February, the fund returned 34.2 per cent compared with the benchmark’s 27.9 per cent and the sector’s 23.8 per cent. Over the last three years, it returned 114.2 per cent against the index’s 92.1 per cent and the sector’s 87.3. Since launch it has increased by 120 per cent against the benchmark’s 114.4 per cent and the sector’s 109.5 per cent. The fund also boasts an information ratio of 0.26 since launch compared to the sector mean of 0.01, which shows that active performance has been relatively good.

The three-strong Asia Pacific team forms a part of Batterymarch’s emerging markets team of six. All of Batterymarch’s funds are managed on a team basis - there are no star managers at the firm - and they are very process-orientated. For all of their funds, they employ what is called a Common Investment Platform, which uses a very systematic, fundamental approach to stock picking.

“It is not regression-based or a black box,” Mr Butler says. “It really just incorporates fundamental ideas using all of the advantages that computer-processing can bring to bear. It looks at the same types of parameters any smart investor would do, such as growth, value, expectations of the analyst community and technicals of the stocks.”

Every day, the platform systematically ranks all the stocks in which the team can build positions. This allows them to sift through an increasingly unwieldy investment universe of more than 1200 stocks and narrow their focus on those companies with the most attractive combinations of value and growth.

For a region where the number of investable and sufficiently liquid companies is growing by the day, the platform has been an invaluable tool, Mr Butler says. “Five years ago, the investable universe for us may have consisted of about 600 stocks,” he says. “Today, it is about 1200, and next year it should be more than 1500, so it is becoming very difficult to evaluate all of those stocks.”

Mr Butler and Mr Prasad build their portfolio, typically consisting of about 140 holdings, by focusing their attention on the approximately 240 stocks ranked in the top quintile by the platform. At this point, they add qualititative information about those stocks the quant model generally cannot assess, such as views on a company’s management or corporate governance.

“That is where we come into the process,” Mr Butler says. “That is when we conduct traditional analysis, meeting the companies, travelling throughout the region, kicking the tires, as it were.” Even still, the quant model is responsible for about 90 per cent of the names in the portfolio, he says. Only about 10 per cent of the time does a manager’s opinion change the ultimate status of a stock.

Because they consider themselves first and foremost stock pickers, they make very few top-down calls on country, sector, market capitalisation or even style. “We are always looking for growth, and we are always looking for value,” Mr Butler says. “In the value part of the cycle, we are looking for stocks with extra growth, and in the growth part, we are looking for stocks that are attractively valued.”

Although they consider themselves “benchmark aware”, they aim for an absolute performance of 3 per cent over the index on a three-year rolling period. To control risk, they observe a regional overweight cap of plus or minus 7 per cent the benchmark. And in 2004, they added a risk-control measure that limits their ability to underweight mega-cap stocks, preventing them from “getting too far away” from the biggest names in the benchmark.

“In essence, our process is a combination of an alpha-driven approach and risk controls that do not let us get overwhelmed should one industry, one country or one market cap outperform,” Mr Butler says. “This way, we stay in the game when there is a particular tilt in what is outperforming to allow our stock-selection alpha to come through.”