August is the month of Singapore’s birthday, and following Jim Roger’s advice to “invest in what you know”, we’re still pretty upbeat about the Singapore market.

So we thought it’d be timely to take a closer look at three Singapore equity funds that outperformed the Straits Times Index. The three funds are: 1) Aberdeen Singapore Equity, 2) SGAM Singapore Dividend Growth, and 3) DWS Singapore Equity Fund.

1. Performance
Over a 5-year period ending 31 July 2009, each fund performed well, soundly beating out all other funds in the Singapore equity space. All three also outperformed the STI which returned an annualised 7.7% over the same period.

DWS has been a consistent favourite among investors, but this time SGAM managed to eke out a sliver of a lead (less than 0.1% difference). Aberdeen, while putting in a strong performance, lagged behind the two. Still, all three came within 1% of one another, and all three beat the STI by at least 3.5%.

Overall, we’d say in terms of performance, they’re more or less evenly matched.

2. Turnover
A fund’s turnover ratio refers to the percentage of assets that change hands over a given period of time. A low turnover suggests fewer changes. A high turnover suggests more changes.

Turnover is an indicator of an investment style more than anything else and we suggest finding a fund that uses an investment style that suits your own personal temperament. Don’t read too deeply into this though, as we saw in the previous section, all three funds provided similarly decent returns. Investors moving in and out of a fund also contribute to a fund’s turnover.

If slow and steady is your style, Aberdeen is the way to go. With an average turnover of less than 10%, less than ten cents of every dollar in the Aberdeen fund changes hands each year. The DWS fund’s average turnover of over 70% suggests a far more active style of management. Somewhere in between is SGAM, which had a fairly sedate turnover in 2008, after nearly half of its assets changed hands in 2007.

3. Expense ratio
How much you’re paying the fund. It’s fairly straightforward: low expense ratios good, high expense ratios not so good.

Like we said, it’s fairly straightforward: of the three, Aberdeen charges the most, SGAM charges the least. We like low expense ratios.

4. Fund size
The bigger the fund, the harder it is to find opportunities for growth. It’s simple mathematics: it’s easier to realise a 100% gain when you grow $1 into $2. Not so easy when you have $1 million.

This doesn’t necessarily mean smaller is better. Let’s say a fund manager makes a mistake. In the case of a large fund, chances are the fund will live to grow another day. In the case of a small fund, chances the fund won’t survive too many mistakes before it goes under.

The fund size of Aberdeen and DWS dwarfs that of SGAM. On the plus side it suggests there’s plenty of room for SGAM to grow. On the other hand, small funds have gone under before.

5. Top 10 holdings
A fund’s top 10 holdings says something about its management style. More concentrated holdings suggest higher conviction. It carries more risk, but returns are potentially greater. Less concentrated holdings suggest higher diversification. Risk is diversified across many holdings, but if a fund is overdiversified, you might as well buy an index.

No shortage of conviction here - all three funds had a substantial amount of their assets in their top 10 holdings. More interesting are the non-STI holdings. Of the three, the top 10 holdings of DWS consist entirely of STI stocks. All but one of SGAM’s top 10 holdings are STI component stocks – property developer UOL group. Aberdeen has three non-STI stocks in of its top 10 holdings – property developer Bukit Sembawang, financial company Hong Leong Finance and electronics service provider Venture Corp.

Aberdeen’s holdings are likely to result in performance that deviates from the STI, but whether it’s a good deviation remains to be seen. The fund’s track record is encouraging though and it’ll be interesting to see how their choices play out.

6. Management

Aberdeen
According to Kristy Fong, Investment Manager with Aberdeen Asset Management Asia, “The Aberdeen Singapore Equity fund is run collectively by our Asian Equities team. One of our core beliefs is that when it comes to fund managers, the sum is greater than the parts. And funds’ being looked after by the team rather than an individual helps to reduce risk. But as individuals on the desk, we retain a sense of responsibility for the fund. Hugh Young and Peter Hames, who have been running the team here since 1992, see to that.”

Kristy also has her own money in the fund, saying “Call it being firm believers of the Aberdeen investment process but really, knowing the hard work behind picking a good quality stock makes one feel safer leaving one's retirement money in the fund.”

DWS
We are slightly concerned with the changes made by DWS. As announced, “the financial crisis and unprecedented market conditions have led to Deutsche Asset Management making structural changes to its business model across the region.”

We’ll have a clearer idea once the dust settles in the upcoming series of EGMs.

SGAM
We spoke with Grace Ho, Portfolio Manager of Singapore Equities with SG Asset Management. She’s managed the fund since it’s inception in December 2003 – a sign of stability. She doesn’t have her own money in her fund, as “It is my personal belief that, in the best interest of unit holders, a fund manager should not have too much emotional attachments.”

Conclusion
Having looked through these three performers, each fund is distinct in its own way. The one quality they share is a concentrated portfolio of stocks. Apart from that, their investing styles are quite distinct. From Aberdeen’s buy and hold strategy to the high turnover style of DWS, to the dividend play by SGAM, each fund has demonstrated it can hold it’s own against the STI.

Related Articles:
Ignore the Consensus, STI to breach 3,600 points by 2011

Fund Update: SGAM Singapore Dividend Growth Fund

Fund Update: Aberdeen Singapore Fund

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