New Star’s active approach to Asia

New Star Asia Portfolio manager Mark Harris is optimistic about the prospects for the region, but says having an active asset allocation strategy on the fund will be key to outperformance.

Managing an Asian fund of funds requires a more active asset allocation approach than most other regional and global multi-manager products, says Mark Harris, manager of the New Star Asia Portfolio fund.

Harris says he has experience of this as he was caught out in 2003 through failing to have a deliberate view on the Australian market. “In 2003, performance suffered because of the Indian election, but also because we were underweight Australia,” he says. “We thought Australia was a defensive market but it has performed well on the back of interest rates being reduced earlier than in other countries and the commodities rally. Initially in 2004 we bought the Baring Australian fund, and then replaced it with the ACDS Australian Natural Resources fund.”

As an advocate of the long-term commodities story, Harris says the ACDS fund is ideal and now comprises 10.2% of the portfolio. It is also important to have an active asset allocation strategy in Asia because of the nuances of each country, he claims. “There are different key drivers in each country and they are at different stages of the business cycle,” he says.

As with America, Harris says it is difficult to find Asian fund managers who can deliver consistent outperformance. Therefore, he needs to do more asset allocation himself. He is neutral on Australia at the moment but has taken other strong active asset allocation decisions. He bought dit-Korea last year and gained a return of about 80%, before selling down his exposure earlier this year.

New Star Asia Portfolio, which holds six to seven funds, bought the Atlantis China Fortune fund in July 2005. Harris says this now comprises 18% of the portfolio. “This has generated a return of around 55% over the past year.” he adds.

He has also taken a significant position in Thailand, with the Dresdner Thailand fund comprising 5% of his portfolio. “We believe the market is cheap,” he says. “It is on a price-earnings ratio of 10.1x and a yield of 3.95%.”

He is cautiously optimistic about prospects for the Asian region. “Over the long term, we are optimistic but there is a possibility of a correction in the short term,” Harris says. “There has been a bull market for three years, interest rates are rising and there has been substantial liquidity flowing into the region. At some point, there is likely to be a correction.

Nevertheless, Harris is more optimistic about Asia than other regions. “In our global New Star Tactical Portfolio, we have a 46% exposure to Asia,” he says.