Performance Review 2006
Gillian Kwek: "Thai equities fell in 2006, as investors became increasingly concerned over rising interest rates and their dampening effect on consumer spending and demand for the region’s products. In addition, the performance of Thai equities was hampered by the capital-control measures announced by the central bank in December 2006. The Fund outperformed the benchmark in 2006, thanks to the favourable stock selection within the information technology, telecom and energy sectors. The off-benchmark exposure to software developer Green Packet proved rewarding as the stock strongly outperformed.
The underweight exposure to wireless telecom service provider Shin Corp added value as the stock underperformed during the review period."
Performance Review 2007
Gillian Kwek: "Thai equities gained in 2007 despite periods of setback amid concerns about a US slowdown, given reduced credit availability and a housing market downturn. Overall, market returns were boosted by an improving economic environment, sustained inflows from domestic investors and robust corporate performance. Investor sentiment also improved after ruling coalition parties emerged stronger from the December elections. The Fund outperformed its benchmark in 2007, due to the overweight in Energy stocks and prudent stock selection within the Consumer Discretionary and Industrials sectors. Within Energy, the overweight positions in Banpu Pub and PTT Public added value on the back of the rising energy prices.Within Consumer Discretionary, a position in BEC World contributed as the broadcaster’s increased advertisement rates boosted revenues."
Performance Review 2008
Gillian Kwek (until 31 March 2008), Anthony Srom (since 1 April 2008): "• Thai Equities retreated and underperformed the region in 2008. The waning export demand, decelerating industrial production and increased retrenchment weighed on equities. In addition, political tensions during the year further dampened investor sentiment.
• The fund outperformed its benchmark in 2008, largely due to the overweight allocation in the Telecom sector. A holding in Advanced Info Service enhanced performance, given its strong revenue growth and high dividend yield. Similarly, shares in Total Access rose owing to the company’s sound balance sheet and strong market position.
• Within Consumer Discretionary, a holding in media company BEC World buoyed returns owing to its etter-than-expected profits and its resilient revenue growth profile."
Performance Review 2009
Anthony Srom: "• Robust economic data and upbeat consumer sentiment underpinned the rise in Thai equities in 2009.
• The fund underperformed the benchmark in 2009. Negative stock selection within the Telecom, Materials and Consumer Staples sectors eroded value.
• Being underweight in Charoen Pokhphand Foods detracted as shares surged along with the rest of the sector after the company increased the earnings outlook on rising sales.
• Meanwhile, an overweight stance in retailer Big C supercenter undermined performance. Shares in the retailer fell after the company reported disappointing results."
Performance Review 2010
Anthony Srom: "• Thai equities ended 2010 with decent gains. Improving economic outlook as well as strong foreign investment inflows helped support valuations. In particular, the rise in international energy prices as well as the supply shortage resulted from the floods in Australia supported gains in energy and coal mining companies.
• The fund outperformed the benchmark in 2010. Positive stock selection within Consumer Discretionary, Consumer Staples and Materials sectors proved rewarding.
• A high-conviction holding in polyester producer Indorama Ventures was the single largest contributor, as better-than-expected third quarter results, asset acquisitions and surging production volumes supported gains.
• The overweight position in C.P. All, which operates seven-eleven stores, soared after it beat earnings expectations. The outlook for the firm was also helped by rising domestic consumption and confidence. Moreover, a holding in Robinson Department Store also added value because of the robust growth outlook."
Performance 2011 - Year-to-Date
Anthony Srom: "• Thai equities performed strongly during the first quarter of 2011. This came against a tough global backdrop as a series of events such as the political crisis in the Middle East and North Africa and the earthquake in Japan threatened to hamper the global economic recovery. However, Thai equities started to retreat in the second quarter as risk aversion increased.
• The fund outperformed the benchmark year-to-date as a result of the favourable positioning within the financials. In addition, prudent stock selection within the materials sector also added value.
• The high-conviction holdings in real estate group Hemaraj Land & Development was one of the key contributors as the firm delivered better-than-expected fourth quarter earnings. Meanwhile, non-exposure to the insurance service provider Siam Commercial New York Life bolstered performance as Siam Commercial Bank acquired the firm at a discount to market price.
• Within Materials, the overweight in Siam Cement enhanced returns as expectations of continued growth in demand and the firm’s ability to raise prices in response to a rise in costs bolstered its performance."
Performance since 2006
Gillian Kwek (until 31 March 2008), Anthony Srom (since 1 April 2008): "• The fund outperformed the benchmark during the review period, due to positive stock selection within the Consumer Discretionary, Materials and Financials sectors. Meanwhile, the overweight position in the Energy sector also added value.
• Within Energy, the overweight position in Banpu Pub supported gains on the back of the strong energy prices over the past few years.
• Within Financials, the high-conviction holdings companies like Tisco Financial Group and Pruksa Real Estate also added significant value."
Investment Process and Strategy – How does the Fund Manager invest?
Anthony Srom: "I employ a fundamental, bottom-up approach to investment management and believe that stock-by-stock portfolio construction based on in-depth stock specific research is the key to the achieving strong performance in the longer term. Although I am benchmark aware, sector allocation will largely be driven by the stock selection process.
In general, I do not adhere to particular sector themes, but favour companies that have above-average earnings growth relative to their sector and/or market, with a compelling business model; that can demonstrate the ability to allocate capital resources effectively, and a track record of increasing returns on equity over time. I also evaluate the execution ability of company management and the valuations of companies relative to their own history as well as to their peers.
At present, the fund maintains a strong overweight in the financials and energy sectors. In particular, improving interest rate margins should be witnessed in the banking sector in light of the rate hikes. I added exposure to property sector in light of the recovering property sector and their attractive valuations. Moreover, I remain overweight in the energy sector given the higher oil prices improve the profit margins of the companies.
Meanwhile, I maintain underweight in consumer discretionary, consumer staples, utilities and telecom given the expensive valuations of the former as well as the unexciting growth prospect of the latter two sectors."
Investment Outlook
Anthony Srom: "In the near term, I expect some downside in the Thai market in the run up to the election on 3 July 11and beyond, as the market consensus begins to price in the risk of a negative scenario.
In the medium term, the Thai economy is well supported by the resilient domestic consumption. Thailand has an attractive demographic profile – a large, young population will add to the country’s workforce and consumers in coming years. Thailand is also a large exporter of food commodities, which are less vulnerable to a global economic slowdown. Additional positives included potential currency appreciation, robust domestic consumption, good credit growth all of which lead to upward earnings revisions.
Inflationary pressure is expected to rise in 2011 as price controls on key items such as transport costs and selected food items are gradually lifted. I believe that the Bank of Thailand will continue to focus more on the inflation risk, rather than worrying too much about growth going forward. Therefore, more rate hikes are expected in the rest of 2011 to combat inflation.
On the politics front, political unrest surfaces every now and again in Thailand. In the medium term, whichever party comes to power is likely to pursue ´populist´ measures and re-introduce some stability in Thailand."
