Fundsupermart talks to Tiong Jin Yan, the new Investment Director at Rothschild Asset Management. He's also the lead manager for the Five Arrows Worldwide Enterprise Fund.
Author : Bharathi Rajan
A Fund With An Eye On Risk
(Fundsupermart.com) Tiong Jin Yan is passionate about risk. Not taking it, that is. He explained to me his investment philosophy for the Five Arrows Worldwide Enterprise Trust (FAWET). "Our goal is to give investors the best possible returns, but we do it with an eye on the risk that we take. What I see in the industry here is that many fund managers take risk without assessing the downside. So while its common for the investing public to say that - we love this fund manager because they are number one - one question people fail to ask is how did they get to be number one? Were they taking huge risks in their investment? So they got there more by luck, rather than real careful study of the overall risk of the portfolio."
Some investors like risk as it ups their chances of good returns. But a good portion of those who have just started investing in unit trusts may not be so ebullient. These conservative investors would rather put up with lower returns if it means sleeping better at night. It's this pool of investors that may be interested in what Jin Yan has to say. Although he doesn't have documented evidence, he suspects that many fund managers take an inordinate amount of risks in the hope of striking it big. "Managers may take too much risk to get that return, and that return doesn't justify the risk that they have taken. People should actually take a look at risk adjusted returns. Once you factor that in, you may realise that he didn't do that well. He may have taken 3 units of risk to give you 2 units of return. And he's actually underperforming. Whereas the guy who took, on 1 unit of risk for 1.5 units of return has actually performed better."
The Five Arrows Worldwide Enterprise Trust (FAWET)
As stated in the fund factsheet, FAWET aims to achieve growth over a long-term horizon by investing in global small and medium sized companies. However, according to changes made in the trustee documents recently, the fund manager is also allowed to invest a portion of the fund in large cap stocks. At present, Jin Yan reveals, around 55% of the fund are invested in small and medium cap stocks while 45% are in large caps. However he insists that this doesn't mean FAWET can no longer qualify as a small cap fund. "Our view is that if it is a pure small cap environment and it may be a bit too risky. But even in our large caps we don't hold huge positions in particular stock. "
The fund is constantly on the lookout for companies that are backed by strong management and those that offer long-term growth. "To give you an idea, about 70% of my decision will be based on the company itself, whereas 30% of my decision will be based on the macro, which is the country factors. "When it comes to choosing companies, Jin Yan says that he barely follows the benchmark. Since the index holds so many companies with very little weighting given to any of them, he says it makes more sense for him to choose his own stocks. However, to guard against the risk of being over weighted in one country, Jin Yan monitors the benchmark index (MSCI World Cap Small Index). "For instance, the US comprises around 40% of the MSCI small cap index. So I have a slight underweight position, I have less than 40% in the fund. The next largest country in there would be Japan with 23%, and I'm slightly underweight on Japan. So on a country basis I have not made huge country bets."
What's Up Ahead
The fund itself has achieved 50% returns since inception (see table below). However, depressed global market conditions have taken a toll on the performance in recent months. Jin Yan admits that this will likely continue, and it may be a while before the fund performance is anything to crow about. But that does not translate into a completely gloomy outlook for the fund. "If you look at the global indices, aside from Europe, all other markets have been trending downwards, especially in Asia. If I was running a pure small cap fund, the next 3 months may be a bit more difficult, but this fund has 45% in large caps and 55% in small caps. So I think I've positioned it well so that we are not at the mercy of the big downturn in the small caps. After the crisis, Asian stock prices have come down to a very cheap price, Taiwan and Korea are at very cheap valuations. So we believe that these markets have good potential. I am not bearish. I am looking to increase more in Asia."
Performance (Cumulative Returns) Of Five Arrows Worldwide Enterprise Trust Fund as at 30 September 2000
INDEX (MSCI World Cap Small Index)
Since Inception (7 Oct 1997)
Source: S & P Fund Services Index: MSCI World Small Cap Index ($S)
Geographical Allocation (as at 30 September 2000) : Asia (ex-Japan) - 12% Europe (ex-UK) - 20% US - 34% Japan - 16% UK - 9% Cash - 9%
The changes to the investment team occurred earlier this year when 3 of the fund managers at Rothschild left. Following their departure, Tiong Jin Yan and Bernard Lim were hired under the Equities Section as Investment Directors. They were joined by Kenny Tjan, who is now the Assistant Director. Each has around 8-10 years of investment experience and hail from financial institutions such as Capital International Inc., Murray Johnston Asia and Nomura Asset Management. Jin Yan is upbeat about the team, though he does emphasise they need time to prove themselves. "The team is new and it isn't fair to judge us just yet. You should give us at least a year. Even that is a bit too early. You should give us a longer period to let us establish a long term track record."
According to Jin Yan, the addition of new members to the team doesn't signal any radical changes in investment style. It will continue to be an approach that marries growth with elements of value investing. He reasons this method has worked well for the Worldwide Enterprise Trust Fund. He's confident that the team will continue to deliver good returns, provided global market conditions permit. "You can't deliver positive returns all the time when everything is going down sharply. It is impossible and extremely naive to think that the same fund managers will be able to give you positive returns every year." He adds that with the current swings in the stock market and problems with inflated oil prices, it is better to aim for realistic returns. "We are going to try and maintain the current pace of growth. Most fund managers will try and get you a 10% increase; that would be their target. But that really depends on the rest of the world. If the US is going into a massive recession, then no one is going to give you that kind of returns."