Fund manager’s diary

Jacob de Tusch-Lec is the manager of the Artemis Global Income fund. His diary runs from 11-15 November.

Jacob de Tusch Lec 450

Sunday Few things can disorient a fund manager more than sitting and staring at screens – especially when they are red. I love to get out; to meet companies; to gain a sense of perspective. An investment we have had for a while is Kuala Lumpur based Silverlake. They are a regional provider of software for financial institutions. Basically, writing software for banks and implementing large IT projects. Their edge really is their Islamic banking offering. Malaysian and Indonesian banks need banking software than can combine modern banking with complicated Islamic banking rules. Being a local provider, Silverlake has an edge. Many of the largest banks in south-east Asia are clients and they are now trying to break in to China.

With a huge number of Chinese banks running their businesses on home-made legacy IT systems, it is just a question of time before they start investing in modern banking software. We think Silverlake will emerge as a winner. The stock has done well for us but we think there is a bit more to go. Trading at 14 times, it is not cheap, but it can grow considerably faster than the rest of the economy and equity market. So it deserves a semi-punchy rating (remember when 14 times earnings would be considered cheap?). And it yields 5 per cent. I like that.

At least that is the theory. Time to pack my bag and go and see for myself.

Monday I fly to Kuala Lumpur, a rather uninspiring place, to visit Silverlake in their offices. When I used their toilets on the floor below, I understood what they meant by being a “cost conscious management team”. Should have asked for that key to the executive bathroom. You live, you learn. More seriously, though, it did confirm my view that Silverlake are as conscious of costs as they are of revenues. A firm hold.

Tuesday til Thursday Singaporean-listed real estate investment trusts are still a good place to be, I believe – at least that is what I thought as I flew in.

They have decent yields of 5 per cent and dividend growth of 2-5 per cent – all in Singaporean dollars which I expect to appreciate a couple of percent a year against sterling. So income should be high and growing, and total return should be good for the relatively low level of risk one takes on.

We hold a mix of Reits with different profiles: Mapletree Logistics holds logistics assets all over Asia (with most in Japan and Singapore); Ascendas owns industrial parks where the tenants are IT and media companies; Far East Hospitality Trust has hotels in the middle of Singapore. They are not the most expensive hotels and not trophy assets, but decent hotels for business travellers. So all in all, a nice and diverse mix of assets.

The problem is that the Singaporean Reits are no longer a secret. Performance has been strong over past year or two, and valuations are now stretched. As with every other quasi-bond, these assets are now being re-priced against a very low government bond yield environment and are trading at premia to the value of the underlying assets.

That said, dividends are well-underpinned and the interesting thing about Singaporean assets is that they operate in an environment of zero interest rates as the Sing-dollar is pegged to the US-dollar. Hence monetary policy is outsourced to Bernanke who has a different policy objective: get growth and employment back to the US economy. Singaporean growth is not great, but anyone visiting the malls and the shopping areas can see that growth is better than in God’s own country.

So looks good, feels good, but are we overpaying for this “feel-good-feeling”? Having visited our holdings, as I make my way back to Blighty I am still not sure. One to discuss with colleagues. Their views may be varied. But they will be clear.