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Aggregate-style investing
BYLINE: BY KELVIN TAN LENGTH: 2742 words
Low-risk investing via a diversified pool of undervalued stocks can deliver market-beating returns, say the founders of Aggregate Asset Management
The founders of newly-established boutique fund management firm Aggregate Asset Management seem happy with their office. Eric Kong, Wong Seak Eng and Kevin Toh recently moved from an industrial complex in Jalan Pemimpin to a simple room above a karaoke bar at a shophouse along vibrant Joo Chiat Road.
This new workplace is relatively tranquil during the day compared with their previous office, as the neon-lit karaoke bar only opens at night. Often, they can hear muted music at their premises in the evenings. But the laid-back fund managers, who are bottom-up value investors, aren't too bothered.
What matters more is the cost savings they enjoy from operating in the suburban district, rather than the expensive central business district (CBD). Indeed, every cent counts as they have collectively ploughed over $1 million of their hard-earned savings into their venture, and are not paid a salary currently.
"The rental here [$2,600 per month] is a bit more compared to Jalan Pemimpin, but it's still a lot cheaper than in the CBD," says Wong, who co-manages a smallish Asian equity fund called the Aggregate Value Fund with Kong. "Because we are a 'no fee' fund, we try to keep all our expenses to the minimum," adds financial planner Toh, who will join his partners on a full-time basis next April.
Launched late last year, the Aggregate Value Fund currently manages about $15 million worth of assets and is sold only to accredited investors in Singapore. It charges zero annual management fee and has a minimum subscription of $150,000.
"We are remunerated based on performance. When we deliver returns to our investors, we will take 20% of the profits," says Kong, whose fund levies a performance fee of 20% on profit, based on a "high water mark". This means no fee will be charged unless the fund exceeds its previous high.
Once the fund hits a new high in terms of net asset value (NAV), it will only collect the subsequent performance fee. "Performance review is done every six months. If we breach a high, but for the next six months it comes straight down, no fee is charged. [The fees] are always based on absolute profits," explains Kong, 45.
The Malaysian who has permanent resident status in Singapore was aghast by the fees investors have to pay, sometimes of up to 2%, even when their funds under-perform or incur losses. "After seeing all this, I thought it was time we did something different. We really have to add value. If not, we shouldn't be in business."
The Aggregate Value Fund targets an absolute gain of 10% each year with a diversified value investing approach.
"We tell our clients [to expect an annual return of] 10%, but we aim to double their money in five years," says the confident Kong, who has a decade of fund management experience.
Both he and Wong were fund managers at local boutique fund management house Yeoman Capital, before leaving to set up Aggregate Asset Management last year.
"When I came to Singapore, Eric hired me to help him at Yeoman Capital. He thought my experience in auditing and interest in investing would help his equity research. We complement each other and get along really well. We have chemistry," says Ipoh-born Wong, who has four years of investment experience from Yeoman Capital. Before that, the 34-year-old Singapore permanent resident was a tax associate and auditor with KPMG Malaysia, and Ernst and Young Singapore.
Beating the markets
Widespread market volatility in May and June, on fears that the US central bank could taper its bond-buying quantitative easing programme sooner rather than later, had led to a downturn in regional equities in 1H2013. This saw Singapore-registered Asia equity Ex-Japan funds incur an average loss of 0.74% over a six-month period, ended June 28.
But Aggregate Value Fund's performance so far this year has been surprisingly resilient. At the end of June, it managed to beat its benchmark - the MSCI AC Asia Ex-Japan - by more than 8%, after generating gains of 4.33% versus a loss of 4.1% incurred by the index.
"Over the past six months, we started to outperform all the regional indices [including those of Singapore, Malaysia and Hong Kong, where the fund is invested]. But I am still not really happy," says Kong, who reveals that he and Wong weren't fast enough in deploying cash into stocks in the early part of this year, when regional stocks were rallying hard.
"We started end-December and the Aggregate Value fund was up 1.7% in January. But we could have been up 6% to 7%. When we started, there were teething problems and we were holding a lot of cash that was not deployed. So we missed the run-up in January and those stocks we wanted to buy."
Nonetheless, he and Wong managed to beat regional markets with their broad portfolio of stocks, comprising 117 counters from Hong Kong (50%), Singapore (25%) and Malaysia (25%).
Diversified value approach
Managers of many newly-launched, smallish equity funds often hold a concentrated portfolio of high conviction stocks in a bid to turn in outsized gains, to grow assets quickly. But the Aggregate Value Fund adopts a diversified approach to stock investing. Indeed, most of its holdings, even the most favourable ones, have exposure of less than 2% of the fund's total assets.
"One of the key points of our approach is diversification, which generates outperformance, without us having to put in a lot of money in any single company," says Wong. "No matter how good you are in doing your due diligence, there are external factors that influence a company. So there is a safety element in our approach.
"If you put 10% to 15% of your assets in one single company, should there be an accounting scandal or fraud, you will never recover your money. But if you have 100 stocks, equally allocated in your portfolio, should something happen at a single company, the maximum loss is only 1% to 2%," explains Wong, who only invests in undervalued stocks with good fundamentals.
Holding an extensive portfolio of stocks does offer an element of protection, but broad diversification could also produce dreary returns, compared to a more concentrated approach. Kong disagrees and argues that holding a portfolio of numerous undervalued stocks could still beat the average market indices by a large margin over the long term.
"Warren Buffett says diversification is for the ignorant. But my personal experience is that this method can outperform the benchmark by quite a fair bit. We are invested in a portfolio of undervalued stocks and when some of them get re-rated, they can go up multiple-fold. That is when they contribute to the outperformance," he adds.
An example is APT Satellite Holdings. Its stock price has gone up threefold this year and it is one of Aggregate Value Fund's top performing stocks on a year-to-date basis.
The Aggregate Value Fund has an initial exposure of less than 1% to the Hong Kong-based satellite company, but outsized gains from this stock have contributed positively to its overall performance, Kong says.
Screening for undervalued stocks
To generate a list of undervalued stocks from a large pool of about 10,000 names in the Asian region, Kong, who used to work with algorithms and computer models at Singapore's Ministry of Defence, uses a quantitative model, which he developed to uncover "undervalued opportunities in a quick way".
"The first question is, where do you start? As for us, we built a model to score the stocks based on fundamental data," he adds.
This quant model gives a score to each stock using fundamental indicators such as income and cashflow statements, balance sheets and dividend yields, as well as valuation gauges which include price to earnings and price to book ratios.
"When you sum up the scores, you get a maximum of 18. Even if a company scores that, it doesn't necessarily mean we will invest in it because there are things that cannot be captured by the system. The company may have issued a lot of rights, or have dilutive issues. Or, its management may be paying themselves high salaries or with a lot of share options. So you still need to do detailed stock analysis," explains Kong, a chartered financial analyst.
After the quant model comes up with the list of the top 1,000 stocks, he and Wong would thoroughly analyse the companies to look for the right ones to invest in.
"We look at detailed information like current and quick ratios to filter out companies that have over-invested their working capital. We also look at the net debt to equity ratio. We like to invest in companies with net cash or low debt position. We don't like companies with high debts because if interest rates were to go up, the financial expenses will be quite substantial and that could cause them to go into financial difficulties," Wong explains.
On valuations, his emphasis is on indicators such as the discount on price to net tangible assets, dividend yields "and not so much the PER [price earnings ratio]".
Often, the most undervalued stocks with good fundamentals can be found in the small- and mid-cap areas, according to the pair, who would buy into these counters with an entry exposure of between 0.5% and 1%. "But if we want to bring our exposure higher to 2% to 3%, then a company visit is mandatory. So far, we have not taken any focused position. For most managers, a 5% exposure in a stock is quite common. Our top holding is less than 2%," says Kong.
Value stock investing involves buying out-of-favour names that are at the bottom of their business cycles or have temporary problems, he adds. "When you are invested in undervalued stocks, they will 'sleep' for a while. But when their temporary problems are solved, or when they come out from the bottom of their cycles, that's when you get multi-baggers and see outperformance."
Aggregate Value Fund's portfolio currently has a dividend yield of 4.47% and a price to book ratio of 0.67 times. "While waiting for some of the companies to recover, we are happy to collect the 4% to 5% dividends," says Toh. "Overall, our average holding period on stocks is five to six years. Our portfolio turnover is low - over the past six months, we have not sold anything," says Kong.
Stock-picks
The top positions in their fund include Qingling Motors (a Hong Kong listed manufacturer of Isuzu trucks), APT Satellite Holdings, Dickson Concepts (a retailer of high-end clothing and merchandise in Hong Kong), Malaysian food company Thong Guan and Malaysian insurer MNRB Holdings.
"Most of our invested stocks would have a history of consistent dividend paying. Qing-ling Motors has a huge amount of cash in its balance sheet. It pays a regular dividend and has a certain franchise quality because it has a joint venture with Isuzu of Japan. It is not a non-branded truck maker," says Kong. Qingling Motors, whose share price is down more than 3% this year, currently has a dividend yield of around 7% and a forward PER of 8.9 times.
Although APT Satellite Holdings' stock price has more than tripled since end-2012 from HK$1.95 to its current price of HK$6.56 ($1.07 as at July 17), Kong says it is still too early to sell this counter. "They launched their third satellite in 2012 and improved revenues will come in over the next two years. The recent price run is just a re-rating to price in some future prospects." The stock is currently trading at a forward PER of 9.94 times.
Compared to Hong Kong and Malaysia stocks, locally-listed counters are generally overvalued, these fund managers say. But investors can still find cheap stocks in Singapore if they look hard enough. Two small-cap counters that they like include network infrastructure solution provider and IT product distributor ECS Holdings and industrial machinery maker Frencken Group.
"The PER of ECS Holdings is around six times and its dividend yield is close to 5%. It is trading below book value. This computer hardware and software distributor in Singapore is quite well-known in the local market and is one the leaders in the industry. It has been operating in this business for a long time," says Wong. Shares of ECS Holdings are up more than 7% this year.
On Frencken Group, Wong says its more lucrative business is the manufacture of medical beds, carried out by the company's subsidiary in the Netherlands. "In Europe, they work quite closely with Philips and Siemens."
In December, Frencken acquired a company called Juken Technology, a manufacturer of plastic components used in automotives, cameras, and household and office equipment. "Junken will complement Frencken's plastic business," says Wong. Frencken shares are up around 5.4% this year.
Although the Aggregate Value Fund invests mainly in small- and mid-cap stocks, it does have a Malaysian big-cap counter - MISC Bhd - in its portfolio. The share price of the shipping company has been in a slump in recent years due to huge losses incurred by its former subsidiary, Liner, which does container shipping in the region.
"MISC, which used to be among the top 10 companies in Malaysia, was on our radar in 2012 when it fell to less than RM5 a share." Three years back, the shares were trading at above RM9 each.
Last year, MISC sold off its loss-making liner business and focused its efforts on the transportation of LNG and petroleum, which Wong says remains a very profitable business. "MISC's parent company is Petronas Malaysia. It always has consistent contracts and sales coming from Petronas, which owns around 60% of MISC."
Wong and Kong felt the shipping giant's gearing ratio would improve after it sold off the liner. At the end of 2012, at the launch of their fund, they bought MISC at RM4.10 a share. "We thought it was a good buy for a big company with an established transportation network with some competitive advantage. Prospective dividend then was 6% to 8%."
Two months after their purchase, Petronas announced a bid of RM5.30 to take the shipping company private, triggering a surge in MISC stock to above its offer price. "Petronas raised its offer further to RM5.50 a share. At RM5.50, we felt the price was still too low because prospects for MISC were getting better. So we continued to hold on to it," says Wong. Although the takeover offer bid didn't materialise, it did send MISC shares up 30% this year, as at July 17.
Currently trading at RM5.60, MISC still looks undervalued, they say, and seem happy to hold on to the stock until prices climb higher to reflect the true value of the company. "At less than 2% of our total portfolio, MISC is not a hot stock or among our top picks. But buying into it reflects our underlying philosophy of buying bargain stocks," says Wong, who reveals that he is considering adding Japanese and Korean stocks to his portfolio.
"Our fund mandate covers the whole of Asia, including Japan. We are looking at Japanese and Korean markets, the next two markets where we will deploy our extra money. We have generated a list of Japanese stocks but have yet to look at them in detail."
Doubling AUM by year-end
With decent performance from their fund and recommendations from satisfied clients, Wong and Kong hope to increase their assets under management (AUM) from the current $15 million to $30 million by the end of the year. "At $30 million, it will be okay for us. Being a small set-up, we will not need to worry that much after that," says Kong.
Over the longer term, the Aggregate Value Fund has an AUM capacity of up to $200 million, its founders say. Should the fund hit that size, they will then have to stop taking in new clients to ensure that its performance is not undermined by an inflow of assets.
In the meantime, Kong says the best strategy to grow the fund is to deliver decent returns and build a good track record. With good performance, new clients will come naturally, adds the fund manager, who currently manages money for about 50 high-net-worth investors, including friends and relatives.
He is in constant dialogue with his investors and feels that many of them will become "life-long clients". "Some may leave because they need to buy a property or house for the children, but most will stay on with us going forward," says Kong, who even sought feedback from clients about Aggregate Asset Management's new premises.
"Some thought it was quite fun to be located in Joo Chiat [which is home to an array of eateries, cafes and karaoke bars]," he quips.
Saw a video of Eric Kong's presentation posted by Drizzt a few days ago, which is quite informative. After some searching, I found this article. It mentions some more details than the video.
The statistical value strategy is closely matching my intention. This strategy has long been applied by Benjamin Graham and Walter J. Schloss, and was recently elaborated in the book Quantitative Value.
But my question is where to get a reliable data source for those 10000 Asian stocks? Do you guys have any idea if there is any free or cheap FA data source available to retail investors? Currently, I have collected a list of around 100 stocks mentioned in various forums, and I enter the financial data into an excel file myself, then I rank the list by so-called "quant model". But the data-entering process is tedious, no need to mention that one has to update the table quite often.
Since fund managers as D.O.G and Mr Kong are also around, hopefully they can also shed some light on this.
BYLINE: BY KELVIN TAN LENGTH: 2742 words
Low-risk investing via a diversified pool of undervalued stocks can deliver market-beating returns, say the founders of Aggregate Asset Management
The founders of newly-established boutique fund management firm Aggregate Asset Management seem happy with their office. Eric Kong, Wong Seak Eng and Kevin Toh recently moved from an industrial complex in Jalan Pemimpin to a simple room above a karaoke bar at a shophouse along vibrant Joo Chiat Road.
This new workplace is relatively tranquil during the day compared with their previous office, as the neon-lit karaoke bar only opens at night. Often, they can hear muted music at their premises in the evenings. But the laid-back fund managers, who are bottom-up value investors, aren't too bothered.
What matters more is the cost savings they enjoy from operating in the suburban district, rather than the expensive central business district (CBD). Indeed, every cent counts as they have collectively ploughed over $1 million of their hard-earned savings into their venture, and are not paid a salary currently.
"The rental here [$2,600 per month] is a bit more compared to Jalan Pemimpin, but it's still a lot cheaper than in the CBD," says Wong, who co-manages a smallish Asian equity fund called the Aggregate Value Fund with Kong. "Because we are a 'no fee' fund, we try to keep all our expenses to the minimum," adds financial planner Toh, who will join his partners on a full-time basis next April.
Launched late last year, the Aggregate Value Fund currently manages about $15 million worth of assets and is sold only to accredited investors in Singapore. It charges zero annual management fee and has a minimum subscription of $150,000.
"We are remunerated based on performance. When we deliver returns to our investors, we will take 20% of the profits," says Kong, whose fund levies a performance fee of 20% on profit, based on a "high water mark". This means no fee will be charged unless the fund exceeds its previous high.
Once the fund hits a new high in terms of net asset value (NAV), it will only collect the subsequent performance fee. "Performance review is done every six months. If we breach a high, but for the next six months it comes straight down, no fee is charged. [The fees] are always based on absolute profits," explains Kong, 45.
The Malaysian who has permanent resident status in Singapore was aghast by the fees investors have to pay, sometimes of up to 2%, even when their funds under-perform or incur losses. "After seeing all this, I thought it was time we did something different. We really have to add value. If not, we shouldn't be in business."
The Aggregate Value Fund targets an absolute gain of 10% each year with a diversified value investing approach.
"We tell our clients [to expect an annual return of] 10%, but we aim to double their money in five years," says the confident Kong, who has a decade of fund management experience.
Both he and Wong were fund managers at local boutique fund management house Yeoman Capital, before leaving to set up Aggregate Asset Management last year.
"When I came to Singapore, Eric hired me to help him at Yeoman Capital. He thought my experience in auditing and interest in investing would help his equity research. We complement each other and get along really well. We have chemistry," says Ipoh-born Wong, who has four years of investment experience from Yeoman Capital. Before that, the 34-year-old Singapore permanent resident was a tax associate and auditor with KPMG Malaysia, and Ernst and Young Singapore.
Beating the markets
Widespread market volatility in May and June, on fears that the US central bank could taper its bond-buying quantitative easing programme sooner rather than later, had led to a downturn in regional equities in 1H2013. This saw Singapore-registered Asia equity Ex-Japan funds incur an average loss of 0.74% over a six-month period, ended June 28.
But Aggregate Value Fund's performance so far this year has been surprisingly resilient. At the end of June, it managed to beat its benchmark - the MSCI AC Asia Ex-Japan - by more than 8%, after generating gains of 4.33% versus a loss of 4.1% incurred by the index.
"Over the past six months, we started to outperform all the regional indices [including those of Singapore, Malaysia and Hong Kong, where the fund is invested]. But I am still not really happy," says Kong, who reveals that he and Wong weren't fast enough in deploying cash into stocks in the early part of this year, when regional stocks were rallying hard.
"We started end-December and the Aggregate Value fund was up 1.7% in January. But we could have been up 6% to 7%. When we started, there were teething problems and we were holding a lot of cash that was not deployed. So we missed the run-up in January and those stocks we wanted to buy."
Nonetheless, he and Wong managed to beat regional markets with their broad portfolio of stocks, comprising 117 counters from Hong Kong (50%), Singapore (25%) and Malaysia (25%).
Diversified value approach
Managers of many newly-launched, smallish equity funds often hold a concentrated portfolio of high conviction stocks in a bid to turn in outsized gains, to grow assets quickly. But the Aggregate Value Fund adopts a diversified approach to stock investing. Indeed, most of its holdings, even the most favourable ones, have exposure of less than 2% of the fund's total assets.
"One of the key points of our approach is diversification, which generates outperformance, without us having to put in a lot of money in any single company," says Wong. "No matter how good you are in doing your due diligence, there are external factors that influence a company. So there is a safety element in our approach.
"If you put 10% to 15% of your assets in one single company, should there be an accounting scandal or fraud, you will never recover your money. But if you have 100 stocks, equally allocated in your portfolio, should something happen at a single company, the maximum loss is only 1% to 2%," explains Wong, who only invests in undervalued stocks with good fundamentals.
Holding an extensive portfolio of stocks does offer an element of protection, but broad diversification could also produce dreary returns, compared to a more concentrated approach. Kong disagrees and argues that holding a portfolio of numerous undervalued stocks could still beat the average market indices by a large margin over the long term.
"Warren Buffett says diversification is for the ignorant. But my personal experience is that this method can outperform the benchmark by quite a fair bit. We are invested in a portfolio of undervalued stocks and when some of them get re-rated, they can go up multiple-fold. That is when they contribute to the outperformance," he adds.
An example is APT Satellite Holdings. Its stock price has gone up threefold this year and it is one of Aggregate Value Fund's top performing stocks on a year-to-date basis.
The Aggregate Value Fund has an initial exposure of less than 1% to the Hong Kong-based satellite company, but outsized gains from this stock have contributed positively to its overall performance, Kong says.
Screening for undervalued stocks
To generate a list of undervalued stocks from a large pool of about 10,000 names in the Asian region, Kong, who used to work with algorithms and computer models at Singapore's Ministry of Defence, uses a quantitative model, which he developed to uncover "undervalued opportunities in a quick way".
"The first question is, where do you start? As for us, we built a model to score the stocks based on fundamental data," he adds.
This quant model gives a score to each stock using fundamental indicators such as income and cashflow statements, balance sheets and dividend yields, as well as valuation gauges which include price to earnings and price to book ratios.
"When you sum up the scores, you get a maximum of 18. Even if a company scores that, it doesn't necessarily mean we will invest in it because there are things that cannot be captured by the system. The company may have issued a lot of rights, or have dilutive issues. Or, its management may be paying themselves high salaries or with a lot of share options. So you still need to do detailed stock analysis," explains Kong, a chartered financial analyst.
After the quant model comes up with the list of the top 1,000 stocks, he and Wong would thoroughly analyse the companies to look for the right ones to invest in.
"We look at detailed information like current and quick ratios to filter out companies that have over-invested their working capital. We also look at the net debt to equity ratio. We like to invest in companies with net cash or low debt position. We don't like companies with high debts because if interest rates were to go up, the financial expenses will be quite substantial and that could cause them to go into financial difficulties," Wong explains.
On valuations, his emphasis is on indicators such as the discount on price to net tangible assets, dividend yields "and not so much the PER [price earnings ratio]".
Often, the most undervalued stocks with good fundamentals can be found in the small- and mid-cap areas, according to the pair, who would buy into these counters with an entry exposure of between 0.5% and 1%. "But if we want to bring our exposure higher to 2% to 3%, then a company visit is mandatory. So far, we have not taken any focused position. For most managers, a 5% exposure in a stock is quite common. Our top holding is less than 2%," says Kong.
Value stock investing involves buying out-of-favour names that are at the bottom of their business cycles or have temporary problems, he adds. "When you are invested in undervalued stocks, they will 'sleep' for a while. But when their temporary problems are solved, or when they come out from the bottom of their cycles, that's when you get multi-baggers and see outperformance."
Aggregate Value Fund's portfolio currently has a dividend yield of 4.47% and a price to book ratio of 0.67 times. "While waiting for some of the companies to recover, we are happy to collect the 4% to 5% dividends," says Toh. "Overall, our average holding period on stocks is five to six years. Our portfolio turnover is low - over the past six months, we have not sold anything," says Kong.
Stock-picks
The top positions in their fund include Qingling Motors (a Hong Kong listed manufacturer of Isuzu trucks), APT Satellite Holdings, Dickson Concepts (a retailer of high-end clothing and merchandise in Hong Kong), Malaysian food company Thong Guan and Malaysian insurer MNRB Holdings.
"Most of our invested stocks would have a history of consistent dividend paying. Qing-ling Motors has a huge amount of cash in its balance sheet. It pays a regular dividend and has a certain franchise quality because it has a joint venture with Isuzu of Japan. It is not a non-branded truck maker," says Kong. Qingling Motors, whose share price is down more than 3% this year, currently has a dividend yield of around 7% and a forward PER of 8.9 times.
Although APT Satellite Holdings' stock price has more than tripled since end-2012 from HK$1.95 to its current price of HK$6.56 ($1.07 as at July 17), Kong says it is still too early to sell this counter. "They launched their third satellite in 2012 and improved revenues will come in over the next two years. The recent price run is just a re-rating to price in some future prospects." The stock is currently trading at a forward PER of 9.94 times.
Compared to Hong Kong and Malaysia stocks, locally-listed counters are generally overvalued, these fund managers say. But investors can still find cheap stocks in Singapore if they look hard enough. Two small-cap counters that they like include network infrastructure solution provider and IT product distributor ECS Holdings and industrial machinery maker Frencken Group.
"The PER of ECS Holdings is around six times and its dividend yield is close to 5%. It is trading below book value. This computer hardware and software distributor in Singapore is quite well-known in the local market and is one the leaders in the industry. It has been operating in this business for a long time," says Wong. Shares of ECS Holdings are up more than 7% this year.
On Frencken Group, Wong says its more lucrative business is the manufacture of medical beds, carried out by the company's subsidiary in the Netherlands. "In Europe, they work quite closely with Philips and Siemens."
In December, Frencken acquired a company called Juken Technology, a manufacturer of plastic components used in automotives, cameras, and household and office equipment. "Junken will complement Frencken's plastic business," says Wong. Frencken shares are up around 5.4% this year.
Although the Aggregate Value Fund invests mainly in small- and mid-cap stocks, it does have a Malaysian big-cap counter - MISC Bhd - in its portfolio. The share price of the shipping company has been in a slump in recent years due to huge losses incurred by its former subsidiary, Liner, which does container shipping in the region.
"MISC, which used to be among the top 10 companies in Malaysia, was on our radar in 2012 when it fell to less than RM5 a share." Three years back, the shares were trading at above RM9 each.
Last year, MISC sold off its loss-making liner business and focused its efforts on the transportation of LNG and petroleum, which Wong says remains a very profitable business. "MISC's parent company is Petronas Malaysia. It always has consistent contracts and sales coming from Petronas, which owns around 60% of MISC."
Wong and Kong felt the shipping giant's gearing ratio would improve after it sold off the liner. At the end of 2012, at the launch of their fund, they bought MISC at RM4.10 a share. "We thought it was a good buy for a big company with an established transportation network with some competitive advantage. Prospective dividend then was 6% to 8%."
Two months after their purchase, Petronas announced a bid of RM5.30 to take the shipping company private, triggering a surge in MISC stock to above its offer price. "Petronas raised its offer further to RM5.50 a share. At RM5.50, we felt the price was still too low because prospects for MISC were getting better. So we continued to hold on to it," says Wong. Although the takeover offer bid didn't materialise, it did send MISC shares up 30% this year, as at July 17.
Currently trading at RM5.60, MISC still looks undervalued, they say, and seem happy to hold on to the stock until prices climb higher to reflect the true value of the company. "At less than 2% of our total portfolio, MISC is not a hot stock or among our top picks. But buying into it reflects our underlying philosophy of buying bargain stocks," says Wong, who reveals that he is considering adding Japanese and Korean stocks to his portfolio.
"Our fund mandate covers the whole of Asia, including Japan. We are looking at Japanese and Korean markets, the next two markets where we will deploy our extra money. We have generated a list of Japanese stocks but have yet to look at them in detail."
Doubling AUM by year-end
With decent performance from their fund and recommendations from satisfied clients, Wong and Kong hope to increase their assets under management (AUM) from the current $15 million to $30 million by the end of the year. "At $30 million, it will be okay for us. Being a small set-up, we will not need to worry that much after that," says Kong.
Over the longer term, the Aggregate Value Fund has an AUM capacity of up to $200 million, its founders say. Should the fund hit that size, they will then have to stop taking in new clients to ensure that its performance is not undermined by an inflow of assets.
In the meantime, Kong says the best strategy to grow the fund is to deliver decent returns and build a good track record. With good performance, new clients will come naturally, adds the fund manager, who currently manages money for about 50 high-net-worth investors, including friends and relatives.
He is in constant dialogue with his investors and feels that many of them will become "life-long clients". "Some may leave because they need to buy a property or house for the children, but most will stay on with us going forward," says Kong, who even sought feedback from clients about Aggregate Asset Management's new premises.
"Some thought it was quite fun to be located in Joo Chiat [which is home to an array of eateries, cafes and karaoke bars]," he quips.
Saw a video of Eric Kong's presentation posted by Drizzt a few days ago, which is quite informative. After some searching, I found this article. It mentions some more details than the video.
The statistical value strategy is closely matching my intention. This strategy has long been applied by Benjamin Graham and Walter J. Schloss, and was recently elaborated in the book Quantitative Value.
But my question is where to get a reliable data source for those 10000 Asian stocks? Do you guys have any idea if there is any free or cheap FA data source available to retail investors? Currently, I have collected a list of around 100 stocks mentioned in various forums, and I enter the financial data into an excel file myself, then I rank the list by so-called "quant model". But the data-entering process is tedious, no need to mention that one has to update the table quite often.
Since fund managers as D.O.G and Mr Kong are also around, hopefully they can also shed some light on this.
