First State star Angus Tulloch answers Citywire's questions

(le fonds First State Asia Pacific Leaders fund fait partie du portefeuille)

As part of a series of Citywire Q&As with some of Europe's leading managers, Angus Tulloch, manager of the First State Asia Pacific Leaders fund, explains his latest market views and investment philosophy.


(Angus Tulloch)

What is your investment style ?

Our investment objective is to focus on achieving consistently strong long-term investment returns for clients without taking undue risk. Volatility of returns is minimised by focusing on capital preservation, as well as capital growth. We are always fully invested, or very nearly so, and thus cannot describe ourselves as absolute return investors. We refer to our style as investing with an absolute return mindset.

We follow an active bottom-up investment approach, whereby the team aims to invest in above average quality companies with conservative, innovative and well motivated managers. We also pay considerable attention to economic, political and other macro-inputs to ensure sufficient attention is paid to market head and tail winds, as well as to diversification. Our belief is that the selection of companies within a portfolio is the most important ingredient in producing above average long-term performance with relatively low risk.

Do you take stock market indices into account ?

With a focus on owning quality companies, we regard benchmark stock market indices as poor representations of potential investment universes. We do not use benchmarks to drive stock selection or portfolio construction so we do not have to own any country, sector or company. We realise that fund managers that consistently do not meet their benchmark index targets will fail. However, we are convinced that the way to achieve superior long-term returns is by applying an absolute return mindset to all investment decisions. By adopting an absolute return mindset we avoid the risk of being carried away when the market occasionally becomes overtaken by indiscriminate euphoria. This focus on the potential downside, as well as on the upside, when making any investment decision means the risk to long-term client returns is significantly reduced.

What areas affected your performance this year ?

Outperformance was helped by Hong Kong & China Gas (Hong Kong: Utilities) which gained as companies with more predictable earnings were favoured and Lihir Gold which was the subject of a takeover bid. LG Household & Healthcare (South Korea) outperformed on optimism about its growth prospects.

On the negative side, a number of Australian stocks were particularly weak over the period. Brambles (Industrials) lagged on concerns regarding customer retention and QBE Insurance Group (Financials) underperformed in a dull global interest rate environment. LG Corp (South Korea: Industrials) lagged as its affiliate LG Electronics failed to make ground on Apple in Smartphone sales.

What potential do you see in Asian shares ?

We do not consider we have a competitive edge in predicting short-term market trends, but we remain cautious on the account of the huge deleveraging requirement present throughout most western countries, as well as possible financial instability in Europe. The longer-term outlook remains positive in absolute and relative terms as the asset class continues to offer an increasing number of well-managed companies focused on shareholder value. The Chinese and Indian economies are expected to drive significant economic growth across the region. In addition, a dividend culture continues to develop in many countries.

How are you positioning the fund ?

As at the end of July 2010, the fund was overweight Consumer Staples, Industrials, Telecom Services, Utilities and Healthcare, whilst underweight Financials, Information Technology, Materials, Consumer Discretionary and Energy. However, we note that Asian consumer companies, perceived to be offering a defensive growth profile, have become a little too ‘fashionable’ with investors. Both the Chinese and Indian markets look priced for near perfection.

On the regional level, the fund is overweight South East Asia and South Korea and underweight Greater China, Australasia and the Indian Subcontinent.

Are you worried about a slowdown in China ?

We are underweight in China at present, given that it is difficult to see how, over the medium term, China could successfully sustain a situation with inflation running at 3%-5% and interest rates as low as they are today. In the case of China, we are also concerned about the longer-term impact of lowering lending standards. Our inherent focus on soundly financed and above average quality companies, current over-weighting of defensive sectors and gold exposure should all help mitigate these negative macro influences.

Can you explain your large position in gold to hedge against inflation ?

We remain conservatively positioned and maintain a large position in Astralian gold miner Newcrest as a hedge against further loose monetary policy.

Much depends on the extent to which inflation rears its head, and also to the time-horizon covered. We would be very surprised if returns from a well structured equity portfolio were not ahead of inflation most of the time.

What would make you less cautious ?

The more ‘aggressive’ sectors, such as Materials and Industrials, currently price in a relatively benign growth and inflation scenario, but offer little protection if this were not to be the case. We will become less defensively positioned when we believe the world’s outlook rests on more stable financial foundations, or when share prices begin to reflect a more realistic appraisal of risk.

Why do you prefer smaller growth nations in South East Asia and Korea ?

Our portfolios reflect our best ideas at any one time, though we adjust these to ensure they are always reasonably diversified in geographical, sector and thematic terms. Lately, we have been finding the best risk/reward opportunities in places such as Singapore and South Korea. Not being index-constrained, we have been able to fully represent this in the composition of our portfolios.

Citywire Verdict : Angus Tulloch has made his name through a conservative approach to investment in Asia. His funds are without equal when it comes to minimising losses and he has been rewarded with top quartile performance over three, five and ten years.

(Citywire - 22/10/10)

Europe de l'Est : la dernière lettre d'East Capital (octobre 2010)

Voici la dernière lettre très complète, en français, d'East Capital sur les marchés d'Europe de l'Est :
une revue des marchés de Russie et CEI, des marchés baltes, d'Europe Centrale et d'Europe du sud-est ainsi qu'un point sur les différents portefeuilles.

le lien pour télécharger le fichier pdf

Mark Mobius : a postcard from Russia

The Russian economy and stock market, like other emerging markets, have had a remarkable recovery since the low points in late 2008 and early 2009. By the end of August 2010, Russian equities had more than doubled from the recent low in January 2009. While the Russian economy contracted by 8% in 2009, this year, it is expected to rise by 5% with a big growth in exports.

Oil and gas now account for almost 70% of exports so the higher oil and gas prices really help. Both, inflation and unemployment are down and despite the forest fires and poor wheat crop this year, the country is in fairly good shape.
President Medvedev has been promoting change in Russia. In 2008, speaking at the Krasnoyarsk investment forum, he said that Russia had four key priorities for the next four years until the presidential elections in 2012. He mentioned the four “I”s: institutions, infrastructure, innovations and investments. The fact that this assessment was being made by the Russian leadership augured well for future reforms.

Moscow is one of my favourite cities because of the wonderful array of historic buildings, palaces, gardens and museums. During each visit, I try to see a different site. This time I was in luck because a performance was to take place at the Ostankino Palace, the former summer residence and private opera theatre of the Sheremetev family.
Today, the estate is the home of the Russian State Museum of Ceramics. The museum probably has the most precious collection of western porcelain in Eastern Europe. Its collection includes items such as the Sèvres porcelain given by Napoleon to Czar Alexander I in 1807. The rooms have been beautifully restored and preserved with original furniture, artwork and, in addition to the porcelain, a remarkable collection of exquisite marble statues from Italy. Throughout the rooms, were 17th century Flemish tapestries depicting parks and gardens, faux marble walls and columns, paintings by French artists.
As we finished touring the Palace and extensive gardens, it was time for the opera. We entered a large long hall, which we were told was the only remaining “palace” theatre in Russia dating from the 18th century. When the music started, we realised that the place had extraordinary acoustics with no loud speakers necessary because of the wooden structure. We were treated to an excerpt from a comic opera beautifully sung by students of a Moscow music academy. We were transported back in time and imagined ourselves as guests of Count Sheremetev.

After our visit, it was back to reality and meetings with Russian companies. We decided to start with a company whose products were probably the kind served by Count Sheremetev; vodka. The company is one of the foremost producers of vodka in Russia with its premium brand vodka selling for US$100 per bottle. One headwind the company faces is the Russian government’s efforts to decrease vodka consumption in the country by imposing high taxes on vodka. Since there are many illegal producers accounting for as much as 35% of total production, the executives feel that a crackdown on illegal producers would help legitimate producers such as themselves even though overall consumption is decreasing.
The company is one of the largest vodka producers in Russia with 9% market share. It has focused its promotional efforts on three brands and invested heavily on marketing and promotion with a sales force of 1,500 people. They want to move up-market and increase sales of their premium brand vodka with not only domestic sales but also exports. Their initial sales in the US were 50,000 bottles of the premium brand vodka. So now, the luxury products of Russia are finding their way to the world.

During our time in Russia, we also visited a vertically integrated steel and mining company. The company produces 17 million tons of steel a year in three integrated steel plants in the Urals region and Siberia. Like other Russian companies, this corporation has also branched out and acquired companies in Italy, the Czech Republic, and even in the US. The company has the advantage of having its own iron ore and coalmines that can supply its steel plants, as well as a commercial seaport in the Far East of Russia from which to ship its steel to Asian markets. Rising steel prices and larger incoming orders, both domestically and internationally, were signals to the company that the global economy was improving.

While visiting an Information Technology (IT) company, we learned about progress in Russian IT services and how the firm has been a beneficiary of the government’s IT upgrade budget. The firm is involved in software development, IT services, and computer hardware serving over 1,000 organisations including government institutions (Ministry of Finance, Federal Customs Service, Federal Tax Service, and so forth) as well as large public companies.

In recent years, the Russian electric energy system has undergone a dramatic transformation from a staid Soviet-style organisation to a more dynamic collection of privatised companies. We visited one of the resultant companies. The firm controls a collection of regional electric distribution companies in the Urals, Volga regions, Caucasus and other parts of the country. We were impressed by the manager’s plans but we knew that, given the extensive capital expenditure needs of the company, the dividends would not be high since the government wants electricity price hikes to be limited even though the regulatory objective is a cost plus regime.

Our next visit was to a food processing company, which focused on the production of sausages, pastes, canned meat and prepared meat products as well as poultry and pig breeding. Meat consumption is growing slightly in Russia in favour of poultry and pork as opposed to beef. However, the real story is market share growth. The market is very fragmented and the company only has an 8% market share in poultry production and about 5% in pig breeding. The company will have opportunities to grow organically and inorganically.
Of course, we should bear in mind that people still breed their own pigs and poultry in rural areas. The meat-processing business has low margins. Pork has the highest margin, which is as high as 40%. There are tax subsidies for agricultural producers in Russia until 2012. However, these may be extended. The valuations also look attractive; however, the biggest risk is the high capital expenditure. The company is in massive expansionary mode because credit is very cheap and the management believes they can gain significant market share.

Overall, it was a very fulfilling trip to Russia where we continued to learn about the investment opportunities in that market.

Dr. Mark Mobius is executive chairman, Templeton Emerging Markets Group.

(Mark Mobius - Citywire - 12/10/10)

D’où viennent ces frais ?

Certains investisseurs s’étonnent du niveau de frais atteint par leurs fonds.

Pour l’investisseur, la « Partie B Statistique » du Prospectus des fonds est une véritable mine d’informations. C’est en effet là que l’on trouve le détail des frais supportés par le fonds. A la suite des frais annoncés en partie A, chaque année le gérant doit publier les frais effectifs. Et force est de constater que ces frais effectifs divergent parfois sensiblement des seuls frais de gestion.

le suite de l'article : ici

(Frédéric Lorenzini - Morningstar - 07/10/10)

Les indices retrouvent-ils leur plus haut d'avant-crise ? Faut voir... !

(bespokeinvest - 04/10/10)

Investors have forgotten about eastern Europe

Video : Alvar Roosimaa, CIO of eastern European SRI specialist Limestone Funds in Estonia, explains to Citywire why the region is looking increasingly interesting from a macro perspective. However, apart from Russia and Turkey, he thinks most global investors are completely avoiding the region.

le lien pour regarder la vidéo : ici

(Jesus Segarra Sobral - Citywire - 29/09/10)