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05-08-2012, 08:44 AM
This is the third monthly article, and features Nikko Asset Management Asia's Mr. Ng Soo Nam.
*Note this is NOT the full interview. For the full interview, please visit the website.
The Straits Times
www.straitstimes.com
Published on Aug 05, 2012
Look for more than dividend yields
In our monthly series featuring fund managers and leading market experts, we ask Ng Soo Nam, chief investment officer at Nikko Asset Management Asia, about his investment philosophy and strategies.
By Jonathan Kwok
High-yield stocks have been in vogue since the 2008 financial crisis as investors seek steady income streams and reprieve from the volatile markets.
But while income streams are important, instead of simply paying attention to the levels of dividend payouts, Nikko Asset Management Asia's chief investment officer Ng Soo Nam, 47, believes that investors should also look at other factors such as reliable management, to ensure the payouts can be sustained.
"A high dividend yield by itself is a necessary but insufficient condition within dividend yield investing, and some other criteria are needed to complete the assurance of yield sustainability," he says.
Investors who placed their money with Mr Ng's team have not have done too badly.
Launched in 1999, Nikko's Singapore Dividend Fund has grown by an average of 10.96 per cent a year for the past three years, after deducting fees and charges and assuming that dividends were reinvested.
By this same measure, the Straits Times Index in this timeframe grew by only 7.25 per cent per year.
Stocks in this dividend fund include CapitaCommercial Trust, CapitaMalls Asia, Frasers Centrepoint Trust, DBS Group Holdings and SingTel.
The fund aims to pay dividends of 5 per cent to 7 per cent every year, spread out over four quarterly payments.
The recipient of a government scholarship, Mr Ng left the civil service in 1995 to join Schroders. He spent about 10 years there and managed the Schroder Singapore Trust, which became one of the best-performing Singapore equity funds.
The Schroder Singapore Trust outperformed the benchmark index in six of the seven years that Mr Ng managed it.
After Schroders, Mr Ng spent 21/2 years with Mirae Asset Global Investment Management (Asia) before joining Nikko in 2007.
Last year, Nikko acquired DBS Asset Management.
Nikko also has other funds, such as the Nikko AM Asia Pacific ex-Japan Fund for stocks in the region.
Q: What is your investment philosophy?
We are fundamental-driven investors. What this means is that we invest to take ownership of the profit streams of companies.
We examine closely how companies compete in order to figure out whether their profits can be sustained, or whether there is a likelihood that they may grow faster than expected.
Q: How do you decide which companies to invest in?
We have 11 analysts and fund managers who go through more than 1,000 stocks in the region, of which 500 fall into our research coverage list. We narrow these down to about 180 stocks which we may consider using for our various funds.
We are looking at companies that are relevant to the Asian growth story.
We want to be comfortable with the quality of their management, the strength of their balance sheet and the strength of their competitive advantage.
We do this by scrutinising the company's past financial and operating data, and examining the management's previous corporate governance and execution track records.
We also meet the management and do our own independent assessment of the industries which these companies are operating in.
We should be able to confidently estimate the company's three-year outlook and earnings stream at least.
So we will have a final list of about 180 stocks that we keep a tight watch on.
It doesn't mean we buy these companies straight away. We will wait for the market to deliver a reasonable price for us to buy.
Among our funds, at any time, our regional portfolio has about 50 to 60 stocks, while the pure Singapore fund has about 30 to 40 stocks.
Q: How do you decide if the valuations are good enough to enter the market?
We use matrices, a combination of price to earnings, net asset values, and price to free cash flow.
For property companies, we tend to focus on the net asset values, for tech stocks, we tend to emphasise free cash flows, while for banks, we use a combination of price to earnings and book value.
For example, when Capita-Malls Asia first came to IPO (in 2009), we didn't buy it because the price was too high.
But last year, when a big institutional investor was selling down, we started buying when the price fell and consistently added more exposure when the stock fell even further in the midst of the market volatility.
As much as we like Capita-Malls Asia's long-term growth story and the quality of its execution, it takes a lot of patience and discipline to wait for the right price to build a portfolio exposure.
We'll also sell our holdings if the stock goes up substantially, and buy when it falls back again. It's part of our risk control.
--------------------
*Note this is NOT the full interview. For the full interview, please visit the website.
The Straits Times
www.straitstimes.com
Published on Aug 05, 2012
Look for more than dividend yields
In our monthly series featuring fund managers and leading market experts, we ask Ng Soo Nam, chief investment officer at Nikko Asset Management Asia, about his investment philosophy and strategies.
By Jonathan Kwok
High-yield stocks have been in vogue since the 2008 financial crisis as investors seek steady income streams and reprieve from the volatile markets.
But while income streams are important, instead of simply paying attention to the levels of dividend payouts, Nikko Asset Management Asia's chief investment officer Ng Soo Nam, 47, believes that investors should also look at other factors such as reliable management, to ensure the payouts can be sustained.
"A high dividend yield by itself is a necessary but insufficient condition within dividend yield investing, and some other criteria are needed to complete the assurance of yield sustainability," he says.
Investors who placed their money with Mr Ng's team have not have done too badly.
Launched in 1999, Nikko's Singapore Dividend Fund has grown by an average of 10.96 per cent a year for the past three years, after deducting fees and charges and assuming that dividends were reinvested.
By this same measure, the Straits Times Index in this timeframe grew by only 7.25 per cent per year.
Stocks in this dividend fund include CapitaCommercial Trust, CapitaMalls Asia, Frasers Centrepoint Trust, DBS Group Holdings and SingTel.
The fund aims to pay dividends of 5 per cent to 7 per cent every year, spread out over four quarterly payments.
The recipient of a government scholarship, Mr Ng left the civil service in 1995 to join Schroders. He spent about 10 years there and managed the Schroder Singapore Trust, which became one of the best-performing Singapore equity funds.
The Schroder Singapore Trust outperformed the benchmark index in six of the seven years that Mr Ng managed it.
After Schroders, Mr Ng spent 21/2 years with Mirae Asset Global Investment Management (Asia) before joining Nikko in 2007.
Last year, Nikko acquired DBS Asset Management.
Nikko also has other funds, such as the Nikko AM Asia Pacific ex-Japan Fund for stocks in the region.
Q: What is your investment philosophy?
We are fundamental-driven investors. What this means is that we invest to take ownership of the profit streams of companies.
We examine closely how companies compete in order to figure out whether their profits can be sustained, or whether there is a likelihood that they may grow faster than expected.
Q: How do you decide which companies to invest in?
We have 11 analysts and fund managers who go through more than 1,000 stocks in the region, of which 500 fall into our research coverage list. We narrow these down to about 180 stocks which we may consider using for our various funds.
We are looking at companies that are relevant to the Asian growth story.
We want to be comfortable with the quality of their management, the strength of their balance sheet and the strength of their competitive advantage.
We do this by scrutinising the company's past financial and operating data, and examining the management's previous corporate governance and execution track records.
We also meet the management and do our own independent assessment of the industries which these companies are operating in.
We should be able to confidently estimate the company's three-year outlook and earnings stream at least.
So we will have a final list of about 180 stocks that we keep a tight watch on.
It doesn't mean we buy these companies straight away. We will wait for the market to deliver a reasonable price for us to buy.
Among our funds, at any time, our regional portfolio has about 50 to 60 stocks, while the pure Singapore fund has about 30 to 40 stocks.
Q: How do you decide if the valuations are good enough to enter the market?
We use matrices, a combination of price to earnings, net asset values, and price to free cash flow.
For property companies, we tend to focus on the net asset values, for tech stocks, we tend to emphasise free cash flows, while for banks, we use a combination of price to earnings and book value.
For example, when Capita-Malls Asia first came to IPO (in 2009), we didn't buy it because the price was too high.
But last year, when a big institutional investor was selling down, we started buying when the price fell and consistently added more exposure when the stock fell even further in the midst of the market volatility.
As much as we like Capita-Malls Asia's long-term growth story and the quality of its execution, it takes a lot of patience and discipline to wait for the right price to build a portfolio exposure.
We'll also sell our holdings if the stock goes up substantially, and buy when it falls back again. It's part of our risk control.
--------------------
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
