Variety of strategies
The HSBC Asian Equity Fund under HSBC’s SICAV Global Investment Fund series currently has $140m under management, with its Asia Equity OEIC counterpart running £40m.
The month of October saw the fund return positive results of 5.47% after a fairly negative year, with the fund’s year-to-date returns currently sitting at -17.94% in sterling terms.
The fund follows a fairly standard approach of long-term capital growth by investing in Far Eastern securities ex Japan, against the MSCI AC Far East Free ex Japan benchmark. Sam Lau, director of equities Asia ex Japan admits he has been cautious of late, recently upping the fund’s cash quota to 7%, which he expects will drag the return over the next few months.
“Strategy wise we are still cautious on the medium term,” says Lau. “I probably wouldn’t change a lot in the next six months. Most economic indicators point to a slowdown ahead. We are expecting a brief rally, but I envisage that later this quarter I will move back into a more defensive mode. I’m not expecting Q1 to be a good quarter.”
Lau’s self-described current strategy is on the “defensive side”, with the fund’s only overweight position being in one out of the seven Asian markets he invests in – Thailand, “partly because of macro fundamentals and policy flexibility”.
The fund is neutral in both Korea and China. The neutrality on Korea has more to do with investment restrictions however, than a negative viewpoint. “Samsung on a neutral position now is 9.5%. Because of the 10% investment restrictions, you will always be underweight,” says Lau.
The Schroders ISF Pacific Equity Fund, a US$310m Luxembourg SICAV managed out of Singapore has been dilligently following a moderate risk approach over the past few months in response to weakening market conditions. Fund manager Leong Wah Kheong says he generally aims to beat the MSCI All Countries Far East ex Japan by 2% to 3% p/a on a long term basis by investing in a diversified portfolio of equities and takes a bottom-up approach to investing. Like its counterparts, the year to date returns have been disappointing, at –12.75% against the benchmark of –11.93%.
The fund’s biggest single market exposure is South Korea, which is attracting 30% of the fund’s assets. The second biggest market is Hong Kong at around 27%, though the fund is still underweight there and Leong is planning to drop the exposure even more. “It’s primarily stock-driven,” says Leong. “We’ve been reducing Hong Kong properties – we were underweight but we’ve made it even more so – and we’ve also increased telcos, such as China Mobile.”
On a sector basis, going forward, he favours electronics and petrochemicals and adds that Korea and Taiwan are likely to be the most promising markets in the coming months, with opportunities arising from“primarily export driven sectors from consumer electronics to autos.”
The Dublin-listed Hamon Asian Market Leaders Fund which currently has $7.43m under management seeks to invest in equities of Asian blue chips as well as emerging blue chip companies. Year to date it has returned a fairly positive –5.72% in dollar terms against its benchmark of –8.89%. Launched in 1995, the fund follows a stock picking strategy, which is currently biased towards the Korea market, with three out of its top five holdings coming from there. It attributes its recent underperformance however to an underweighting of the Korea and Taiwanese markets, in addition to its mid-cap holdings which did not benefit as much as their large cap counterparts in the Asian market rebound in October. Moving forward however, the fund says it still sees value in mid-caps, which is backed up by adding stocks such as Travelsky Technology and Sinopec Zhenhai Refining in China to its portfolio. In terms of sectors, the fund clearly favours financials, investing 37.8% in the asset class. The fund says Hang Seng Bank has been yielding positively, and it has added two new financial stocks to its portfolio; ChinaTrust and Taishin Bank in Taiwan.
The US$30.4m Lloyd George Asian Plus Fund domiciled in the Cayman Islands has been beating the MSCI AC Asia Pacific Free benchmark consistently since mid-1999, the fund only having launched onto the market in late 1998. Year-to-date, it is currently returning 2.5% and has returned 109.10% since its inception.
The fund is run by Zaheer Sitabkhan, who follows a long and short equity strategy to achieve absolute capital gains. The fund prides itself on its intensive research though this didn’t help it much in the past month when it saw itself holding HPCL, an Indian stock which plummeted 30% in one day. The investment style is described as conservative, following a bottom-up approach to industry and company analysis with a macro overlay.
North Asia dominates nearly 30% of the fund’s market exposure divided fairly equally between Japan and Taiwan, with the former contributing largely to the fund’s recent performance. However oversaturated technology markets in Japan, Taiwan and Korea have led to falling share prices which have impacted performance. Looking ahead, the fund expects Asia to perform better “once the dust settles”.
The US$51m ARN Newly Industrialised Economies Fund managed out of Singapore attributes its recent performance to its lack of adherence to any particular benchmark, or investment strategy. The fund invests in a broad range of equities across the large cap, mid cap and small cap asset classes, utilising both top down and bottom up approaches. Fund manager Christopher Wong says this refusal to follow any particular strategy has allowed him more flexibility when chasing returns. “We do not want to pigeon hole ourselves in top down or bottom up, this way it provides us with more opportunities,” he says adding that his country weightings are never based on overweighting or underweighting any benchmark. “We try to lose less money; we give ourselves less of a benchmark so we have more lattitude.” This strategy is most apparent in his allocation to Korea, a favoured market amongst Asia Pacific funds, to which he only allocates 6%, less than Singapore at 10%, Thailand at 18% and Hong Kong/China at 37%. Wong adds that this decision has kept the fund above water, returning 13.21% this year at end October. “We haven’t been positive on Korea. We doubt this bullishness, and we have reservations about the one way optimism on sell side and on the buy side.”
The US$2.8m First State Asian Smaller Companies Fund launched in 1993 seeks long term capital appreciation from a diversified portfolio of Asian small caps, with Hong Kong as a current core focus, representing 28% of the fund’s investments. The fund focuses on well-managed, financially sound companies that it says has served it well in recent volatile market conditions. It has returned 13.8% this year, though its last three months have seen negative returns of –11.1%, which it attributes largely to it’s heavy bias towards Hong Kong, with a weighting of 28%. Hong Kong small caps have been underperforming their larger peers over recent months, which has proved a drag on returns. Looking forward, the fund is fairly cautious, based on negative investor sentiment in the South East Asia region following the Bali bombing on top of a continued threat of a US –led war on Iraq. It’s allocations to the South East region amount to around 37% of the total portfolio.
The US$43.9m JF Eastern Smaller Companies Fund, run out of Hong Kong is currently offering investors one year returns of 19.5%, though the fund rose comparitively moderately at 1.9% in October, as the fund took more of a defensive position. Fund manager Angus Coupeland describes his strategy as one of buy and hold, on the basis that he feels there is not much to be gained from trying to trade small caps, it’s much better to find a few you like and hang on to them. “My mantra is to try to buy small companies that will turn into big companies,” says Coupeland. “And the larger companies I’m comfortable to hold onto for a couple of years.”
He aims to make absolute returns every year; “I don’t want to have a negative year” though admits the past six months have been particularly challenging as small caps suffered following a “stellar first quarter”.
One of his biggest holdings in Hong Kong high street retail outlet Esprit Holdings, to which he has a 9% allocation; 5% each is allocated to textile goods companies Yue Yuen and Fountain Set, again both Hong Kong companies. Hong Kong is his biggest market by far representing 41.8% of the portfolio, which has been largely driven by a bouyant consumer market though he forsees possible uppings in weighting to Korea looking ahead.
The US$67.8m Henderson Horizon Pacific Fund managed by Heather Manners and John Crawford seeks long term capital appreciation by investing at least two thirds of its assets in larger caps across the Pacific region, ex Japan.
Heavily weighted towards Australia, which represents 29.8% of its portfolio as at end of September, followed by Korea at 19.2%, its Australian exposure sheltered the fund to some extent from US uncertainties which affected most of the regions markets. That being said it has not yet kicked the trend of negative returns it has been producing over the past few years. Year to date as at end of September the fund was down by 12.1%, with the fund experiencing negative returns of –9.6% in the month of September.
The fund says it is being driven further now by stock selection as more companies failed to meet earnings expectations. It remains focued on stocks with “reasonable earnings visibility, healthy cash flows and with strong capital management skills”, according to the fund’s September report. Its key holdings currently include Korean favourite Samsung Electronics and Australian stalwart ANZ Bank.