Fund Managers & Market Experts Interviews (Sunday Times)

A new series which I will post up monthly which features interviews with leading Fund Managers and market experts, and asks them about their strategies.

The Straits Times
Jun 3, 2012
Buy and hold for steady gains
In the first of our monthly series featuring fund managers and leading market experts, we ask Aberdeen Asset Management Asia's managing director Hugh Young about his slow and steady approach to investing.

By Aaron Low

In the topsy-turvy world of micro-second investing, complete with computer algorithms making automated buys and sales on behalf of traders, Mr Hugh Young's approach to buying companies based on values and trust may seem antiquated.

The managing director of Aberdeen Asset Management Asia studies a company, meets the management for lunches and visits the company's facilities - all before buying a single share of the firm.

But once he does, he sticks with it for a long time. Many of the firms he has bought have continued to stay in the funds he manages, for more than a decade.

Asked if he is a disciple of value-investing, much like the Oracle of Omaha Warren Buffett, Mr Young says: 'Well, who wouldn't say they are buying value?

'For us, it's about buying value with growth. We want growth but we also want growth at a value.'

The Aberdeen Pacific Equity Fund, which uses this approach, has not done too badly either.

Since its inception back in 1997, the Asia-focused fund has returned 11 per cent a year. This has beaten by a fair margin the MSCI Asia Pacific Index, which has seen 7.4 per cent annualised returns since 1997.

In simple terms, if you had invested $1,000 with the Pacific Equity Fund, your funds would have grown to about $4,700 now.

Q: How do you identify companies to buy for your funds?

We pick long-term leaders in many fields. We do this by getting to know them as best as possible, including making repeated visits to their offices to talk to their management.

I think some investors are sometimes dazzled by the prospect of growth of small companies or growth stocks.

Facebook, for instance, is 'let's all get excited about growth'.

But when there is a slight disappointment in the performance, the market reverses suddenly, and people may lose a lot of money.

And many did, did they not?

Q: How long do you usually hold your companies for?

Most of them have been with us for 10 to 15 years. Ideally, we'd like to hold them for a long time.

For instance, we've had OCBC since the inception. We've also held some Indonesian stocks from as far back as 1987. That's more than 25 years.

Over the last year or so, we've added just three companies - Li and Fung, AIA and HSBC.

Q: So it's a buy and hold strategy? I thought experts said that's all dead and buried in the current volatile landscape?

Yes, it is buy and hold. It's a rather torturous process but it's slow and steady.

But then again, timing the market is not all that easy. People say they can time the market but I've not come across very successful people.

Wasn't it just recently that JP Morgan's chief said they had lost US$2 billion (S$2.6 billion) in trading?

So maybe you can do well for three to four years, getting very good gains, but after that it can all go to pieces.

I don't think many people will be awfully excited about our stocks and they are really nothing to shout about.

But we've had a decent run - taking into account our exorbitant 2 per cent fees - getting about 4 per cent more than our benchmark on an annualised basis.

So we've done okay. But this is no guarantee that we will continue to do as well.

Q: What do you consider to be some of your best buys over the years?

Oh, not very exciting and maybe even boring. But these are good companies with good management that have grown well in a conservative, steady manner.

One is OCBC, which we bought in 1996 for our Singapore fund. Good bank, done all the right things and grown well.

Another is Australian insurance company QBE, which we added in 1991. Its share price has taken a bit of a hit due to the floods in Thailand but a good company still.

Another is Siam Cement in Thailand. Big company involved in the growth of the country too.

Q: With the markets falling now, are you looking out for good bargains?

I would say that there are no stunning bargains for sale now. And looking at the macro environment, it does seem that things could get a lot worse.

Q: Some investors have described the period between the 1950s and 2000s as being the great bull market. Is that the last great bull run or can we expect another?

I've never really felt that there has been a giant bull run in my 30 years of investing. In hindsight, it may seem that way but, while I was in it, it did seem as though we were just lurching from one crisis to another.

The market is perennially volatile and swings from wild euphoria to depression. But I do welcome the volatility as this creates opportunities.

aaronl@sph.com.sg

quite a candid guy ya?
interesting read and suggested general macro direction seems to be getting worst...

The same bunch of guys told us that the mkt direction is getting better at the start of the year.
What gives?

They are the true Capt Hindsight. At least the majority of them.

(05-06-2012, 08:57 AM)arthur Wrote: They are the true Capt Hindsight. At least the majority of them.

I agree. Most people are paid to have a view. They are, sadly, not paid to have the CORRECT view.

Did Hugh Young tell us "the mkt direction is getting better at the start of the year?"

I don't remember that. Hugh Young is quite well known in the fund investment cycle as the Warren Buffett of Asia. (Though he is from Scotland.)

May be not all fund managers are the same.

(05-06-2012, 09:44 AM)Mr Nobody Wrote: Did Hugh Young tell us "the mkt direction is getting better at the start of the year?"

I don't remember that. Hugh Young is quite well known in the fund investment cycle as the Warren Buffett of Asia. (Though he is from Scotland.)

May be not all fund managers are the same.

I have never heard of Mr Hugh Young, neither did I mentioned that he said the mkt direction is getting better at the start of the year.
What is true however, is that if anyone is to sieve thru the investment houses analysts, fund mgrs reports early this year, we would have seen a very postive bias for this qtr and year.

Nevertheless, why is it that everyone likes to hang on to the name "warren buffett" of XXX?
Hu Li Yang is also potraying himself as one.

WB should have patented his name to get some royalties out of it.

(05-06-2012, 10:05 AM)arthur Wrote: Nevertheless, why is it that everyone likes to hang on to the name "warren buffett" of XXX?

Well, I think if one is seem as on par, or some similarity with WB, one can charge a premium in talks, seminars or books etc....

(05-06-2012, 08:57 AM)arthur Wrote: The same bunch of guys told us that the mkt direction is getting better at the start of the year.
What gives?

They are the true Capt Hindsight. At least the majority of them.

The way the broom swept, I am sure Hugh Young was hit. The interviewee in the article is Hugh Young.

(05-06-2012, 11:37 AM)Mr Nobody Wrote:

(05-06-2012, 08:57 AM)arthur Wrote: The same bunch of guys told us that the mkt direction is getting better at the start of the year.
What gives?

They are the true Capt Hindsight. At least the majority of them.

The way the broom swept, I am sure Hugh Young was hit. The interviewee in the article is Hugh Young.

Mr Nobody,

Unless you are affiliated to Mr Hugh Young, don't see what the point of getting excited over this.
The broom also spare the minority as well as there are contrarian fund mgrs who are worth their salt out there.

This is the second monthly article (note it's usually published in the first week of the month), and it features Mr. Dominic Rossi.

The Straits Times
Jul 8, 2012
Stock up but try to preserve capital
In our monthly series featuring fund managers and leading market experts, we ask Mr Dominic Rossi, global chief investment officer for equities at Fidelity Worldwide Investment, about ways to navigate the market uncertainty

By Jonathan Kwok

Amid the economic turbulence in the global economy, Mr Dominic Rossi is advising investors to stick with stocks that can offer a degree of 'capital preservation'.

The London-based global chief investment officer for equities at Fidelity Worldwide Investment notes that stock prices are attractive. But he added that until the macro-economic problems clear up, there is limited room for equities to rise.

Those who have stuck with Mr Rossi and his fund managers would have benefited from their insights and investment philosophies.

For instance, in terms of US dollars, Fidelity's South East Asia Fund has returned 9.01 per cent a year since its inception in 1990.

This has beaten the MSCI All Country Far East Free ex-Japan Index, which had an annual return of 6.27 per cent.

This means that if you had invested US$1,000 (S$1,280) at the inception of the fund, it would have grown to US$6,672 by now. An investment of the same amount in the benchmark index would have returned only US$3,811.

Q: What is your view of the global market currently?

There are a number of issues that we need to see progress on. Until then, we think the equity markets do not have much upside.

Firstly, Europe is facing three crises - banking, economic and sovereign debt.

The banks are facing problems in funding, and the asset quality of their loans is not very good.

Then you have the sovereign debt crisis, which ties closely to the economic crisis.

There's too much sovereign debt, and the economies are continuing to shrink.

The United States is facing a fiscal cliff. There are, at the end of this year, automatic tax increases and spending cuts which will take effect unless Congress steps in to change that.

It is estimated that the tax increases and spending cuts will reduce gross domestic product by US$570 billion, or 3.8 per cent.

But on the bright side, commodity prices are showing signs of declining. Inflation numbers are beginning to subside, and this gives central bankers more flexibility.

Q: In this climate, how are equity funds worldwide performing?

There's just this fear, and it's pretty hard to sell equity funds nowadays. For the industry, equity funds have been in redemption for four years now. Generally, the appetite for equities is very weak.

Where we have seen some inflows, it's been into the income funds. The appetite for bonds is stronger.

Q: How are the valuations for equities worldwide currently?

The stock market is cheap, no matter which matrix you use - price to earnings, price to book, or dividend yield.

But it's cheap for a very good reason, because we have all these risks. It's hard to see the equity market rising substantially while we've got these risks.

Q: What is your advice for investors then?

We are advising our clients to focus on capital preservation. We think there is value in dividend yields.

We are advising clients to look at equities that can provide income, rather than just purely growth.

This is a departure from the way that investors had looked at equities in the past.

To look at yields, you can look at the regulated sectors - the utilities, the telcos. There can also be significant dividend yields in health care, consumer stocks, real estate investment trusts, and to some extent, energy stocks.

In terms of countries, you can find good dividend yields in Australia and in parts of Asia. Singapore has got some good-yielding stocks.

Q: How do you suss out a good dividend stock to buy?

You should look for sound balance sheets, good free cash flows, clear payout ratios and distribution policies, and historical distributions.

You want a declaration from the company as to what their dividend policy is. In many countries, you can get this clarity.

What you are looking for is a commitment to grow the dividend with earnings over time. I will recommend going for companies that can grow dividends, rather than just purely high-yield plays.

Q: How long does Fidelity usually hold its investments for?

It varies from fund manager to fund manager. We have some fund managers who'll hold stocks for five years or more.

We like to buy and hold. About 30 to 40 years ago, the average holding period of a stock was seven years, but today it's only seven months. The average holding period of Apple's stock is two months.

You can see why, when you've a lot of hedge funds, a lot of day traders. But we don't think that's the best way to invest in equities.

They are a long-duration asset. To really reap the benefits of an equity investment, you have to act as an owner.

Q: How does an individual investor act like an owner?

We've got an active engagement process with companies, such as from a corporate governance point of view.

We engage the boards behind the scenes regarding various issues, such as with regard to remuneration. We're quite happy to vote against boards.

We don't like this, but if we feel, for example, that boards are being too generous in terms of remuneration to their executives, we'll vote against them.

jonkwok@sph.com.sg