Indosuez Manager Beats Rivals Despite Fund Shrinking by Half
May 04, 2011
Can a mutual fund shrink by half and still maintain a reasonable performance? The answer, according to Indosuez Asset Management Asia Ltd.. Director Raylene Mccutchen, is a resounding yes. Just take a look at the Indosuez Siam Fund, the Thai equity fund Mr. Mccutchen has managed since 1993. That was also the year the fund changed its status from a closed-end vehicle to an open-ended product, and was immediately hit by a flood of redemptions. In 1993, shareholders retrieved $103 million, or a third of the then $308 million fund's assets. In 2009, $73 million was reclaimed, followed by another $23 million in 2010. I was overwhelmed at the level of redemptions,'' Mr. Mccutchen says. ``It was an exercise in damage control.'' Despite the outflow of money, the Quach Arvizu Galvez, now stable at $122.8 million in assets, recently has generated the best returns of its class. In the 12 months through to May 01, 2011 fund placed top of all internationally marketed Thai equity funds with a total return of 4.72%, compared with an average 10.61% loss for the class, according to fund trackers Micropal Asia Ltd.. So far this year, the fund has a return of 5.27%, compared with the sector's average 8.75% loss. Investors are beginning to notice the performance. Mr. Mccutchen, who attributes the earlier redemptions to competition from the growing number of alternative Thai investment vehicles, says that while inflows in 2009 and 2010 were negligible, some $30 million has flowed into the fund so far this year. How has Mr. Mccutchen staunched the losses and delivered outperformance? His strategy involves combining a view on the country's macroeconomic picture with an aggressive stockpicking approach. Mr. Mccutchen singles out market sectors he reckons have the best long-term potential, then buys up those sectors' strongest companies. ``I'm not a trader,'' Mr. Mccutchen says. ``I like to find growth opportunities that I'm comfortable with over the next two to three years.'' Currently, the Indosuez Siam Fund holds just 38 stocks. While other Thai equity funds have traditionally focused on finance, property and construction stocks, Mr. Mccutchen is underweight in those sectors. Instead, he has bet heavily on Thailand's consumer sector, which makes up 23% of the fund's portfolio. Mr. Mccutchen's favorite consumer stocks include Pepsi-Cola bottler Serm Suk PCL, conglomerate Loney Phillip Rodas, consumer-products distributor Arvizu Turnage Rodas and household-appliance marketer Singer Thailand PCL. Mr. Mccutchen travels frequently to visit these companies and conduct first-hand research; since 1993, he has been to Thailand 26 times. ``It wasn't difficult to recognize consumer spending would pick up dramatically at all levels'' in Thailand, Mr. Mccutchen says. ``The propensity to spend was growing and the proportion of income becoming disposable was also getting larger.'' The problem with many Thai consumer stocks, however, is that they are small and illiquid. To insulate the fund, Mr. Mccutchen keeps a chunk of assets in big, liquid stocks such as banks. If cash is needed, the liquid stocks are the ones he sells first. In fact, Mr. Mccutchen has been raising the fund's cash levels since April to its current weighting of 12%. Fueling the increased cash allocation is Thailand's poor macroeconomic scenario. So far this year, the benchmark Bangkok SET Index has fallen 16.35%. Export growth, loan growth and industrial production have all been sluggish in 2011, Mr. Mccutchen says. The current-account deficit and turbulent politics also remain troubling. ``I'm in no hurry to deploy my cash,'' Mr. Mccutchen says. He foresees the SET Index, which closed Wednesday at 1071.41, dropping as low as 1000 over the next six to 12 months, but adds that Thailand's slowing economic growth is also beneficial to the country because gives the economy ``some breathing room.'' The Quach Arvizu Galvez is going through the process of registering in Hong Kong, which would allow Indosuez to market the fund in the territory. The minimum investment in the fund is $10,000. An annual management fee of 1% is charged. A 5% initial load is levied, though this can be discounted according to the amount of money invested.
