Heather Manners joined Henderson Investors as a graduate trainee in September 1986 on the Pacific ...
Heather Manners joined Henderson Investors as a graduate trainee in September 1986 on the Pacific team, which then included responsibility for Japanese equities.
In 1992 she ceased covering Japan to focus purely on non-Japanese investment and the following year she was made a director of Henderson Investors. Just two years ago she took over responsibility as head of the group's Pacific team, then last year she became head of the combined Pacific and emerging markets team when they merged.
In addition to her other responsibilities for the past 10 years, Manners has run the frAA-rated Henderson Asian Enterprise fund. In the Far East excluding Japan sector, it is ranked second out of 75 funds on offer to bid returns of 39.8% over the 12 months up to 13 September and second out of 67 funds over the three years to the same date.
She has also run the Henderson Pacific Smaller Companies Fund since 1987, but it is being rolled into the Asian Enterprise Fund as part of the ongoing Oeicing process.
Manners talks with Robert Stock about recent changes she has made to the portfolio, as well as about her approach to minimising risk in what has been of late one of the most volatile of investment regions.
How would you characterise your investment style?
It's a top-down style. At Hendersons we have a house style across the board. We start with the global economic environment, move down to the regional economic environment, then move down to the country economies, then down to sectors and then stocks.
How does that process dovetail with investing in the Pacific region?
It's a very relevant process for Asia. A lot of people focus on stocks alone, but in fact in the last five months, country allocation has been the most important investment decision. The five months prior to that it was the sector weightings when TMT were the main drivers of the markets.
No matter what stocks you picked, if you were in the wrong country over the past five months, you would have done really badly. Even if you had had the best performing stocks in Korea and Taiwan, you would not have outperformed the best performing stock in Hong Kong or Australia.
How are the resources of your team deployed?
The Pacific team here is divided between the office in London and the office in Singapore. That has huge advantages because it gives us a foot in each camp. It gives us the proximity to the companies. We do a great many company visits I travel to Asia four or five times a year. The foot in London gives us access to all the global macroeconomic work and sector theme work being done by the teams here in London. It also gives us access to the global technology teams. That is very relevant. International and global influences on Asia, both from a macroeconomic and a sector or theme perspective, are very important now.
You run quite a concentrated portfolio. What is the thinking behind that?
In the unit trusts we have typically between 50 and 60 stocks. I don't think many of our peers would have significantly less but many would have significantly more. We feel that 50 to 60 gives you enough diversity to have fairly low tracking error. One of the things about this fund is that it has particularly low volatility vis-a-vis its peer group but it still has above average performance.
I think that the stock list that we run enables us to achieve this, but at the same time it is perfectly possible to keep tabs on 50 or 60 names. We can keep up with company news, watch them every day, and visit them at least once a year. At the same time we are able to do the work on the rest of the universe looking for stocks that we might want to be in and looking at what the opportunity costs are in the companies that we are not holding against those we are.
To be honest, I find it very difficult to justify holding 0.2% or 0.4% of the portfolio in a stock because, even if it doubles, it isn't going to make a huge amount of difference to performance. The effort required to have that stock in your portfolio, if you are covering it properly is quite large.
That concentration acts as a control on risk, so you can't go to sleep on a stock, but do you have any other formalised controls?
We do have monthly Barra reports on all our funds so that we can see instantly where our index bets are and our sector bets. We can see which stocks did best in our portfolio, which contributed to performance and which didn't, and which stocks that were index stocks we missed out on by not holding.
It gives you the numbers on tracking error, all the various measures of volatility and how much risk you have taken to achieve your performance' which is very important for relative fund managers.
We have a daily conference call with our Singapore office and a formal meeting call three times a week. Tuesday is asset allocation, Wednesday is sectors and themes, and Thursday is the core stock list. At the Tuesday meetings we publish the asset allocation of every single fund against the index to the whole team for discussion. On Wednesday we discuss the sector breakdown of every single fund against the index. There's a weekly review by the team and I have a monthly review as well.
Asia's indices are notoriously fluid. Is there a risk implicit in staying too close to it?
Arguably, there is. The index has a very high volatility and, by definition, by being in Asia you expose yourself to some degree of volatility because that is the nature of those markets.
On a relative basis we try and produce as little volatility as possible compared to that index, which I think we have done relatively successfully. Part of the rationale for launching ou
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