cheng liao-run axa rosenberg pacific (ex-japan) small cap fund sells hong kong-listed kerry properties, reducing his exposure to the country
Axa Rosenberg's Far Eastern small cap strategy is focusing on reduced exposure to the Hong Kong property market and an increased weighting to Australia.
Between April and May, manager of the Pacific (ex Japan) small cap fund Cheng Liao has sold the fund's top holding, the Hong Kong-listed Kerry Properties. He also disposed of New Asia Realty, which made up 2% of the fund, and has bought into Australian companies Flight Centre and Seven Network on the basis the underlying fundamentals of the companies were more attractive.
The fundamental bottom-up valuation of stocks is key to the management of the fund with the portfolio built on two investment ideas.
He said: 'First we buy companies that are relatively cheap based on an analysis of items on their balance sheet and income statement. We aim to build portfolios containing companies that are good value based on their fundamentals. Second, we consider the earnings dimensions of a stock because we see a strong connection between future earnings and various earnings measures.'
The Sars outbreak has had a mixed effect on Pacific economies, Liao said. 'Public behaviour brought on by the virus has benefited some sectors.
The small-cap market made gains in April,' he noted. However, he added, the market underperformed the rest of the world as the epidemic subsequently hit retail sales, travel and other services very hard in the region.
'The impact to the equity market is not as severe as expected with only the transport, hotel and retail sectors being badly affected,' Liao said.
Liao's Hong Kong stocks performed the strongest for the period February to April 2003, when Sars was already a concern, yielding a return of 4.43% versus -6.45% for the small cap benchmark.
Even taking into account the Sars epidemic, Liao is optimistic the Rosenberg's quant driven investment approach can outperform the benchmark at reasonable risk, as well as outperform the Cazenove Global Smaller Companies Pacific ex-Japan Index. 'We identify companies that are not only cheap but which have superior earnings prospects and whose value will be recognised by the market within a reasonable time. There are many such opportunities in Pacific ex-Japan small-cap companies,' said Liao
The fund is managed following the quantitative investment process developed by Dr Barr Rosenberg and his associates in the 1970s, and has been continuously refined since.
The process combines two quantitative models to identify mis-priced stocks. One identifies relative valuations and the other models short-term predictive factors, including growth and momentum measures.
The output is put through an optimiser and automatically adjusts the weighting of longer and shorter-term factors, taking into account dealing costs as well as a target tracking error of 6% against the benchmark.
The firm seeks to add value from stock selection, not from betting on industries, countries or regions.
The fund managed to outperform its peer group with below average volatility, returning 50.29% over the three years to end of April 2003.
The portfolio posted one of the lowest volatility scores in the Asian small companies (excluding Japan) sector over the three years at 5.26%.
This compares with the most volatile in the peer group, Carlson Equity Asian Small Cap, which had a standard deviations score of 7.60% over the same period.
The fund, domiciled in Dublin and launched in 1999, invests only in smaller companies, capitalised between $20m to $2.5bn.
The firm's Pacific database monitors around 700 companies, which fall within this capitalisation. It invests only in developed Asia, covering Australia, New Zealand, Singapore and Hong Kong.
Clarke replacing Balkham
'Deep-dive analysis of client behaviour'
Ways to mitigate April’s increases
The best equity income funds examined