Investors across the world continue to view Asia as the region with the strongest growth potential for their equity investment and fund managers keep on developing and launching new investment vehicles to satisfy the increasing demand.
With all eyes on Asia, it’s becoming more difficult for managers to differentiate themselves from competitors. If we consider performance as a determining factor, the PF Asian Equities (ex Japan) fund has done well in keeping ahead of its peers.
The fund, domiciled in Luxembourg and managed by Pictet Funds, has been the top performer in the Asia ex-Japan category over three years, according to data provided by Standard & Poor’s.
Fund manager Nidhi Mahurkar believes the secret of the fund’s good performance is to be found in what she describes as the firm’s somehow ‘quirky’ investment style which follows a value orientation. “We have an unique valuation framework centered around the replacement cost of capacity.” This framework allows them to screen on a global basis and assess company valuations in a global context and, according to Ms Mahurkar, much more objectively than many of their competitors “who are just getting lured by the thematic appreciation of a given market.”
“There was a lot of quantitative and qualitative work done in Taiwan before we committed so much of our money to that market,” she says.
The key to any replicable long-term success, she says, is to have a well-defined discipline and to stick to it. “We don’t deviate from that discipline and that explains the consistency of our performance.”
The portfolio strategy focuses on overweight positions on domestically-orientated sectors – primarily financials, domestic retail, consumer discretionary, travel and tourism, and domestic industrials – and on global growth plays in the export sectors that can offer value where technology is a significant component.
Geographically, the fund’s most favoured region is Greater China, with overweight positions in Taiwan and China, which at the end of March amounted to 25.3 per cent and 16 per cent of the fund’s total assets, respectively.
Extreme divergence
“Taiwan has the most extreme divergence in bond/equity valuations we’ve seen in decades,” Ms Mahurkar says. “If you take a long-term view, this market has been in extreme underperformance.” Pessimism regarding the state of the domestic economy has resulted in huge mis-pricing and consequently potential investment opportunities.
Other countries where the fund has overweight positions include Thailand, Indonesia and the Philippines. Exposure to South Korea is now neutral, and the fund’s management team believes that this is a market where they can identify value from a stock-picking perspective.
During the first quarter of the year, the fund’s key portfolio decisions focused on companies benefiting from the strong Asian currencies including the financial and real estate sectors, consumer stocks and the base metals and mining industries.
Over the last year the fund has managed to attract around $600m (€468.8m) in new inflows from investors, taking the current total assets under management to just over $2bn. Although for the time being this large size does not represent management or liquidity problems, Ms Mahurkar admits that, once they hit the $2.5bn figure, they might decided to review how much more money they are going to take.
