Asian mystery in the blue mix

The PSigma Global Equity fund uses a GDP-adjusted approach that gives a mix of blue chips from the developed and developing worlds. Advanced Info Service of Thailand, anyone?

Patrick Collinson 160 byline

Every fund manager says they are a bottom-up stockpicker, but if your mandate is to run a global equity portfolio, it’s impossible not to have a top-down, macro view. PSigma’s approach is to use a GDP-adjusted allocation that ensures it has a mix of blue chips from the developed world plus emerging blue chips from the developing world.

PSigma Global Equity is run by Jing Sun and James Abate, perhaps best known for his stint running Credit Suisse’s Transatlantic fund.

So it’s interesting that when it comes to global allocation, it’s the US that PSigma is least keen on. The duo are overweight Asia Pacific and Europe, but underweight North America.

Sun likes to explain it in stock terms: “Compare Verizon with China Mobile. Subscriber revenue is likely to grow much faster in China. So we size the position with a bias towards GDP growth.”

But this is a broadly spread portfolio. No stock is more than 2 per cent of the fund, and turnover is high-ish at about 80 per cent a year. For example, the fund’s fact sheet lists Want Want China Holdings as its single biggest holding, but Sun sold it just last week. Want Want is the largest maker of rice cakes in China, and also exports huge numbers to Japan, and it’s one of those few famed Chinese consumer stocks that has actually delivered. Listed in Hong Kong in 2008 at HK$3, it is now trading at about HK$10.50. “It performed well for us but it was time to sell,” says Sun.

The fund was launched in June 2011 and has built a respectable, if not soaraway, performance record since then. Over the past year it is up 14.1 per cent compared with the average 11.8 per cent gain in the Global sector, and has garnered nearly £25m in assets under management.

Sun and Abate keep to a relatively simple stockpicking process. They focus on economic value added by a company, how it has used its capital, the returns on that capital, its growth record, investment, restructuring and so on. “It’s a traditional valuation matrix where we focus on the competitive position of a company, its market share, leverage and return on equity.”

But he insists that it’s a long way from being a closet index fund. “Instead of just following the index, there is a built-in bias towards investing in faster growing markets and economies, based on GDP.”

That sounds fine, of course, until you look at how markets behaved in 2012. Despite China being the world’s fastest-growing major economy, it was another lousy year for the Shanghai Composite Index, which is still barely half its level five years ago. Meanwhile recession-bound Europe recorded striking stockmarket gains; the Dax was up more than 10 per cent, while the Cac-40 surged nearly 15 per cent.

Sun thinks 2013 is going to see European stocks continue to push forward, and Chinese stocks come out of their long slumber. “European stocks are still very attractively valued. They are still just bouncing back from very oversold positions. Valuation-wise, Europe remains attractive, as do emerging markets and the Asia Pacific region. Yes, if you look at the longer term you will see that China has done relatively poorly until recently. A lot of that was to do with fears of a China slowdown and debt issues in Europe.

“We think China is going to continue to grow and our forecasts are maybe slightly above consensus. No, we’re not going to see 10 per cent or 12 per cent again, but we will maintain growth at 7-8 per cent, while in Europe we feel the recession won’t get any worse, which should allow global equity markets to make moderate returns in 2013.”

More recently, the fund has become overweight in financials. “Throughout 2012 we were underweight financials and overweight technology, which did well for us.” One recent buy is BNP Paribas. Sun reckons that despite the election of Hollande as French president, the French bank is in in an improving regulatory environment, and is seeing its fundamentals firm up.

The portfolio has an interesting mix of blue chip names known to any UK investor, plus the emerging blue chips in Asia that are still a mystery to most of us. For example, it holds Diageo, BHP Billiton and Toyota alongside Advanced Info Service of Thailand. Who?

They are a mobile phone operator in Thailand formerly controlled by ousted prime minister Thaksin Shinwatra, and still enjoys a monopoly on some services in the country. It is hugely profitable, and last year saw its shares rise from 150 baht to over 200 baht. Sun bought his holding at the fund’s inception in June 2011, when the shares were about 100 baht. “It basically doubled from the time we bought through to September 2012, when we sold our holding,” he says. “It was one of the main contributors to performance last year.”

A drag on performance, though, has been Apple. Sun says he has been cutting his position from overweight to underweight, and taking profits along the way, although he probably now regrets not having sold it down completely. It is currently 1.7 per cent of the fund, down from 2.2 per cent in early 2012.

Speaking before the poor results figures sent Apple stock sliding, Sun said: “We have taken profits a number of times on Apple. We still think on a valuation basis it is a reasonably attractive stock. Its recent decline is momentum and liquidity driven, and we still like the company.” And after a slump from $700 to just $450, maybe Apple is now good value.