Performance Review 2006
Reginald Tan: "The fund outperformed the benchmark due to our sizable weighting in the financials. Our position in Bank of Ayudhya paid off as the stock outperformed the index by 30% after GE Capital announced its purchase of 25% in the bank in the 3rd quarter of 2006. Interest rate was hiked during the first half of 2006, and the banking and property sector rebounded in the second half of the year in expectation of a rate cut. Our holdings in various property stocks like LPN Development, Preuksa Real Estate and Rojana Industrial Park contributed positively as their sales continue to deliver during the year. Our underweight in the telecommunication sector worked out well as the stocks did not perform that year as reforms continued to be delayed.
On the negative side, the underweight position in the utilities sector resulted in underperformance due to positive expectations on the IPP bidding. Certain consumer stocks which we did not hold outperformed the index like Big C Supercenter and Siam Makro due to improving profit growth."
Performance Review 2007
Reginald Tan: "The fund outperformed the benchmark in 2007. The overweight in energy sector boded well as energy prices almost doubled through the course of 2007. However given the stock limit of maximum 10%, PTT the largest energy conglomerate stock in the index which did well during the year impacted performance in that sector. Our position in Aromatics Thailand (petrochemical) did well as the stock more than doubled in 2007 due to very strong product spreads. Our position in Bank of Ayudhya was noteworthy, which rerated after General Electric (GE) bought 29% of the bank in mid 2006. There were strong expectations of vast improvement in the operations of the bank coupled with acquisitions along the way.
A handful of mid-caps stocks across various sector hurt the fund performance due to the volatile market movement that affected stock prices, this includes Krungthai card, Phatra Securities, Regional Container Lines."
Performance Review 2008
Reginald Tan: "2008 was a very challenging year for the fund. The Lehman Brothers collapse in September 15 2008 triggered a global financial crisis. Politically, Thailand was facing mounting protest from the People Alliance for Democracy (PAD). The fund underperformed the benchmark by 2.89%. A broad based correction in many sectors hit especially hard in the mid-cap stocks segment where liquidity became an issue in a rapid falling market. In terms of sectors we were hurt being overweight property, consumer staples, healthcare and tourist sector. We were helped by our underweight position in Energy, overweight position in banks, telecommunication and utilities as the fund turned defensive around the 3Q-4Q in the year."
Performance Review 2009
Timothy Teo (since May 2009): "The fund outperformed benchmark strongly by 6.10% in 2009. The market rebounded sharply from March. Major changes in the portfolio were made during the market rebound. In general, the fund rotated out of the more defensive stocks like telecommunication, media and utilities into other more cyclical stocks like property stocks, shipping stocks and automaker stocks. Another theme we focussed since early 2009 was the tourism theme which was represented by Airport of Thailand. Then, tourist arrivals were in the midst of bottoming out. We added to an insurance stock, Bangkok Life Assurance on the day of IPO in September and have been adding to its position since then. The stock has been up 90% since IPO. On the negative side, we were hurt by our underweight in Krung Thai Bank that rebounded sharply from very depressed levels and our overweight in CP All that underperformed in a sharp rally in the market. In the early part of the year, we were overweight telecommunication which were also a drag on performance, since 2Q, the position was moved into an underweight."
Performance Review 2010
Timothy Teo: "The fund outperformed the benchmark strongly by 8.17% in 2010. Despite seeing one of the worst violence in the last two decades which saw the death of more than 90 people, Thailand turned out to be the best performing market. Our sizable position in the banking sector contributed to the outperformance. Positions like Tisco Financial and Krung Thai Bank were strong winners for the fund. Our overweight in CP All, the 7-11 convenience stores franchiser in Thailand paid off handsomely as the stock more than doubled for the full year. Our stock selection in the energy sector worked well, stocks like PTTEP and Thai Oil were good performers in the sector. On the contrary, our bets in the property sector did not work out well due to the cooling measures to manage supply of condominiums in Bangkok."
Performance 2011 - Year-to-Date
Timothy Teo: "Fund at this point is up against the benchmark. Our sizable overweight in the banking sector is one of the key positive contributors to performance. Krung Thai Bank is the top performer in the banking sector YTD. Our holding in Bangkok Life Assurance has helped as the stock rallied about 45% after announcing good results for the last two quarters. Certain property stocks added to our outperformance as well given the recent rally in the sector. Our underweight position in Indorama Ventures added to our outperformance as the stock became overvalued earlier this year. Our underweight in the telecommunication sector impacted relative performance as the recent quarterly results are slightly better than expectations. Also some stocks suffered underperformance after the Japanese Earthquake due to linkage to productions of auto parts and cars. One example was Tisco Financial Group."
Performance since 2006
Reginald Tan to Timothy Teo: "The fund outperformed the benchmark based on getting different themes right through the course of the years. On aggregated basis, sectors that did well across the time period were big exposure to banks, properties and energy. The low exposure in telecommunication benefitted the fund. Our low exposure in the food sector hurt the fund. Political concerns present opportunities to buy stocks over the longer term."
Investment Process and Strategy – How does the Fund Manager invest?
Timothy Teo: "Amundi Asian Investment team is a bottom-up manager focusing on in-house research excellence. Historically, Amundi Asian Investment team has emphasised the primacy of proprietary research. Fundamental company analysis is conducted so as to identify high conviction ideas to create “alpha”. Our bottom-up fundamental research philosophy is translated into early entry of under-researched stocks whose growth potential has not yet been recognised by the market. This encompasses stocks that have not yet been discovered by the investment community as well as stocks that have been neglected due to past disappointments. These research-based high conviction ideas are then adopted via a more concentrated portfolio.
We constantly identify major investment themes in the region via third-party research, independent consultant firms and industry contact together with internal discussion amongst the investment team. Importantly, conducting regular company visits in the region is an integral element identifying on-the-ground development in different industries and countries. Frequent management contact and cross checking along the supply chain enables us to track changes in companies’ operating performance and growth outlook to identify under-valued stocks. Amundi has a long standing relationship with corporations and governments in the region, which dates back for more than two decades. Therefore, a significant number of visits are organized directly without the attendance of brokerage analysts, in order to receive a higher level of information from companies or governments. Amundi is also the beneficiary of numerous visits by companies to its offices, when those management teams visit Hong Kong and Singapore, allowing the investment team to meet individual company management. Finally, we have also utilized access and contacts with many unlisted companies across the region as a supplemental source of information.
We conduct regular company visits to the senior management in order to obtain proprietary information in the business outlook, future strategy, business model, management execution capability and corporate governance and hence formulating our assessment in earnings outlook in the next three years. Valuations check and control aim to determine our earning assessment versus market expectations. Then we include the stock in the RCL with a defined target price and weighting.
For Amundi Funds Thailand, Amundi’s research universe is approximately 70 companies. This is preliminary and subsequently screened via quantitative tools, earnings and liquidity criteria. We conduct around 100 on/off site company visits annually, including multiple visits with the same company, and filter 50 stocks for more detailed analysis. Our research universe includes both listed and unlisted companies involving frequent contact with the latter to provide more insight. Then we construct a RCL consisting of approximately 15 stocks in total with defined weightings. In addition, we also have a liquidity risk parameter of US$1.0M average daily trading volume over 3 months for stocks to qualify. However, we do allow up to 15% of the RCL to be comprised of mid cap ideas where daily turnover is below the US$ 1 million threshold.
Portfolios are constructed from the RCL, which include all approved decisions by the investment team using exclusively the relative weights of the RCL that reflect our regional asset allocation, client portfolio guidelines and investment constraints. Typically, the fund will invest in all the stocks in the recommended list. However, for the purpose of country funds like Amundi Funds Thailand, given the need for a broader universe of stocks, the manager has the opportunity to include stocks from outside the recommended list that have good growth potential but would normally be filtered out during the initial liquidity screening. These new stocks should undergo the same research process as the recommended stock list before being added to the fund, this research effort is undertaken by the country specialist. Fund investment restrictions and risk profiles dictate fund portfolio construction as well as the types of securities held. The different Asian RCL are reviewed and debated by the regional portfolio managers and the country analysts at the weekly stock selection meetings. All Asian fund managers and research analysts directly report to CIO in Asia. The CIO has ultimate decision-making authority.
Some slowdown in the production and export of automobiles and electronics is expected as a result of the Japan crisis, while the impact of the flood in the South was limited. But we remain positive on the outlook for Thailand. Although we expect 2011 economic growth to be around +5%, it is a slowdown from a very high level in 2010 (+7.9%). It will likely be broad-based and domestic demand-led. There is scope for recovery in Capex, with strong baht and utilization rates around 80% in petroleum, pulp and paper, chemicals, construction materials and export-oriented sectors. Consumption remains firm due to high income growth and employment. Tourism sector recovery should help to offset slower growth in manufacturing employment. Market weaknesses caused by election concerns (if any) should present a buying opportunity for the fund.
The strategy has been trimming some of the cyclical while rotating selectively back to domestic sectors such as Real Estate and banks.
Sector wise:
Overweight Financials & Real Estate, on the back of a recovering economy and abundant liquidity (foreign inflows and trade surplus)
Overweight Health Care
Underweight Resources as QE2 is expected to be withdrawn later this year.
Underweight Telecommunication (unexciting growth and uncertain outlook in 3G license issuances)."
Investment Outlook
Timothy Theo: "Thailand is a country loved for its people and culture. Situated at the heart of Southeast Asia, it has become a natural hub for travel, transport and export-oriented industries.
Its reputation as one of the most service-minded cultures in Asia is unparalleled, which explains why tourism accounts for 6.5% of GDP, it is expected to double over the next 10 years. This will be spearheaded by the rise of regional tourism, led by China and India.
Furthermore, Thailand has earned its stripes as the ‘Detroit of the East’ with automobile production capacity having reached 1.4 million units in 2010, and many auto majors represented in the country. The industry is expected to grow by 35% in the next 5 years. This will underpin competitiveness via economies of scale.
Another of Thailand’s accolades is that it is the largest global rice exporter. Other agricultural commodities produced in significant amounts include fish and fishery products, tapioca, rubber, grain, and sugar. With almost 40% of the labor force within the agricultural sector, and with government’s policies designed to boost rural development, domestic consumption will buttress economic growth momentum.
This trend has been apparent in the rise in provincial household incomes, with the number of households attaining ‘middle income “status more than doubling between 2002-2009 as the benefits of higher soft commodity prices are reaped. The Thai agricultural sector’s fragmented nature also helps to spread the wealth, unlike in other countries where plantation structures dominate.
The Thai economy has recovered substantially following the baht devaluation which led the Asian region into the financial crisis of 1997/98. Since then, Thailand has managed to re-build its foreign exchange reserves, to the extent that currency in circulation is four times covered. The financial system is on a sound footing and healthy position.
Any discussion on Thailand would not be complete without a word on politics; the country after a period of political turmoil is heading towards a season of equilibrium. Hopes for enduring stability rest upon the upcoming general election on 3 July 2011, following which the differences between the country’s multi-colored factions will begin to be addressed."
