Five Mutual Funds That Make Sense To Help You Weather Tough Times
March 9, 2001
Money & Investing
Five Mutual Funds That Make Sense
To Help You Weather Tough Times
By ERIC BELLMAN
Every afternoon, Henderson Horizon Pacific Fund's four managers and analysts pile into a conference room in Singapore for the daily phone call with their six counterparts in London. Then the sparks begin to fly. Each manager makes a case for the market trends the fund should pay most attention to, while the others look for holes in the logic. What emerges are a few bruised egos and the "matrix" -- the fund's special formula for how it should weight its portfolio across different countries and industries.
"You can't invest against the team view, so if you want to go against it you have to argue in the meetings," says Kirsteen Morrison, the 36-year-old director at Henderson Global Investors Singapore Ltd. "It's very competitive."
Evidently, it's also effective. Since Ms. Morrison took over five years ago and implemented the daily debate system, Henderson has gone from one of the worst-performing funds in the region to one of the best, earning a top spot in Weekend Journal's rating of the region's best Asian mutual funds.
That's no mean feat. To come up with our list of five proven long-term performers, we mined data on more than 200 Asian funds. Some, like Ms. Morrison's, have developed innovative ways of staying ahead of the market. Others, like the top-performing JF Asian Opportunities Fund, deploy armies of analysts to investigate companies across the continent.
But whatever their method, it's their record that counts. And these days, that counts for a lot. With fears of a U.S. downturn threatening to sink stocks throughout Asia, and with high-tech companies hitting new lows, staying afloat in this market takes more than dumb luck. As Ms. Morrison herself concedes, making the right picks has never been tougher. "During the technology boom everything went up, just like it did during the Asia boom. It didn't matter what you owned," she says. "Now there is much more stock selection driving the market."
Already, Asian investors are heeding the call, plugging billions of new dollars into mutual funds over the past three years. But which funds can you trust with your cash? The choice can mean the difference between early retirement and years of hard labor.
The Raffles-Asia Investment Co. fund, for example, has given its investors returns of 70% over the past three years. Put another way, had you invested $15,000 at the beginning of 1998 and never touched it, you would now have $25,500 to put toward that yacht this year. Meanwhile, the unfortunate souls who handed over their savings to Lloyds International Portfolio Asia Equity Fund over the past three years might be pulling their kids out of private school. The fund has lost 20% during the same period.
1See methodology and list of top rated funds
So how did we pick our winners? We started with the Standard & Poor's Fund Services Ltd. list of 205 offshore funds invested in the Asia-Pacific outside of Japan. Then we narrowed it down to the biggest funds that have been around for at least five years. We took that list and applied something called the Sharpe ratio to come up with a ranking of funds that have consistently done better than their peers over the last five years. The Sharpe ratio is one of the measures Standard & Poor's uses to differentiate the consistent outperformers from the funds that just happen to be having a good week.
While there is no guarantee that the top-ranked funds today will be the best in five years' time, it's a safe bet that the funds on this list have smart management teams and strong portfolios
THE WINNERS
1. JF Asian Opportunities Fund
2. JF Eastern Fund
Edward Pulling and Roger Ellis of JF Asset Management in Hong Kong have been working together for five years. They appear to be a potent duo, jointly managing our top-two funds. In 1999, the Eastern Fund was the best-performing offshore fund invested in Asia outside of Japan, while the Asian Opportunities Fund was number five. Both have beaten the average annual returns of their competitors for four of the last five years and have boosted the value of their fund holders' investments by around 50% over the last three years.
With a combined total of close to $1 billion, these funds can move markets. That's one of the reasons why their managers are so secretive. And it's also one of the secrets of their success. "These are large funds so I don't want to show the cards in my hand," says the discreet Mr. Pulling.
But he is willing to discuss his method. Managers at JF build their portfolios by picking apart company earnings. That means hundreds of company visits a year and a lot of interaction among their fund managers across Asia.
While he doesn't want to mention any particular names, Mr. Pulling says his favorite sectors these days are Taiwanese chip-related companies and Hong Kong financial stocks. He adds that one of his fund's advantages is its ability to switch its sector of choice quickly. Last year, for example, it was among the first to lower its weighting on technology companies while bulking up on soaring financial stocks.
Mr. Pulling is convinced Asian markets have arrived at a crucial fork in the road. "We are trying to gauge two opposing forces," he says. Those are: falling interest rates, which tend to lift stock prices, and slowing profit growth, which tends to hurt prices. "The question right now is what will drive markets: earnings or liquidity," he says.
3. Henderson Horizon Pacific Fund
Before Ms. Morrison started managing the fund in 1996 it had been one of the dogs of the region, usually doing worse than three-fourths of its competitors. But her daily debate system seems to have done the trick, turning it into one of the top-15 funds in the last two-, three- and five-year periods.
The Henderson team takes a top-down approach, looking for market, industry and country trends first. Then it finds the stocks that will benefit most from those trends. And Ms. Morrison credits the debate regimen with steering her toward winners she otherwise might overlook. Just last month, she says, she was reluctant to invest in what she calls "dirty cyclical" shares in the mining, oil and chemical industries. These companies needed more global growth to recover, she thought. Her colleagues changed her mind, though, pointing out that because these companies have been struggling for so long they are cheap, and further that they don't have to cope with excess supply on their markets.
The regular afternoon debate tipped against her when Australian coal exporters squeezed an 8% price hike out of Japanese buyers, proving that the raw material suppliers were gaining the upper hand even without strong economic growth. The fund raised its weighting on Australian commodities companies and started buying stocks like BHP Ltd., Rio Tinto Ltd. and WMC Ltd., which have risen more then 10% on average since then.
"We know we might be early, but we will not be wrong," says Ms. Morrison.
4. Mellon Newton Universal Growth Fund: Asian Growth
Ezra Sun lives in London, thousands of kilometers from the Asian markets. He wouldn't have it any other way. It's so far, in fact, that he doesn't get distracted by the market buzz. That, he claims, has been one of the reasons why he has been able to do better than the competition. Last year, during the mad dash to buy into Hong Kong's Pacific Century CyberWorks Ltd., Mr. Sun refused to pick up even one share. He didn't care if the company was going to deliver broadband to Asia. He simply didn't like its business model and he didn't like its price. "I call it Pacific Century Fireworks," says Mr. Sun, who has been at Newton Investment Management Ltd. for five years.
Instead, he stocked up on an unpopular Hong Kong semiconductor maker called QPL International Holdings Ltd. When he bought in, at the end of 1999, the company was about to get a boost from a surge in demand for computer chips. But with everyone else fixated on new Internet companies, QPL was practically overlooked by the market, allowing Mr. Sun to get in when the stock was trading at less than three times earnings per share. He says he made more on that one out-of-favor stock than most people made on PCCW -- even at its peak.
"I would rather make money in a company that has substance and a P/E," says Mr. Sun. "I pride myself that I still made a lot of money out of the technology stock boom without going into PCCW."
His mutual fund holders should be happy as well. The fund was the fifth-best performer invested in Asia outside Japan last year and has been one of the top six for the last two-, three- and five-year periods.
You'll find more little-known companies in his portfolio than you will in the other funds on our list because Mr. Sun isn't concerned with tracking a benchmark index. Instead, he prefers to look for companies on the verge of a turnaround, even if that means his performance could be dramatically different from the index and other funds he is measured against. One of his top holdings right now is Hong Kong's Bank of East Asia Ltd. It is not an important piece of any index and it's currently out of favor because it's shouldering heavy debt. But still, Mr. Sun says it's a good buy because it's cheap and is trying harder than others to get a foothold in China, which will offer great growth in the future.
5. Fidelity Asian Special Situations Fund
Allan Liu says there is nothing fancy about his method. He simply relies on his 15 years of experience and Fidelity's team of more than 25 analysts and fund managers to pick apart companies' books and management.
"We care more about examining a company's fundamentals and attractiveness of valuations than we do about reacting to industry trends," says Mr. Liu, who is also a director of Fidelity Investments Management (Hong Kong) Ltd.
While the fund's brochure states that it leans toward companies going through a recovery, transition or new product launch, Mr. Liu has been sticking recently to widely-held blue-chips, like Hong-Kong-based Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd.
The size of the fund has grown by more than 20% already this year, to $180 million. And with good reason. It was among the top-10 funds in 1999 and has been in the top 20 for last two-, three- and five-year periods. The value of the fund rose 35% in the last three years while the Morgan Stanley Capital International AC Far East ex-Japan Index slipped 0.2% in the same period.
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
Hyperlinks in this Article:
(1) interactive.wsj.com
--------------------------------------------------------------------------------
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com
Used with permission of wsj.com |
