Terrific on Pacific Rim

08/18/2009 11:19 am EST


Carla Pasternak

Editor, The Income Investor

The Asia Tigers Fund hasn't changed its stripes, handily beating its benchmark year after year, writes Carla Pasternak in High-Yield International.

The Asia Tigers Fund (NYSE: GRR) invests in such hot spots as China, India, Taiwan, Hong Kong, South Korea, and Singapore. Not only has its price surged 48% since the start of the year; the fund has also paid out $1.98 in (long-term capital gains.)

Fund manager Punita Kumar-Sinha has had ten years at the helm of GRR, with stellar performance. She is supported by a team of five analysts with a combined 40 years of experience in the Asian markets.

While the fund invests in large and small companies in both developed and emerging Asian markets, as of June 30th it had over 70% of its assets in large-cap stocks. Top holdings include Samsung Electronics, Taiwan Semiconductor (NYSE: TSM), and telecom giant China Mobile (NYSE: CHL), which together account for over 10% of the assets.
The current portfolio contains some of the best dividend payers in Asia. China Mobile has increased its distributions by about 40% per year over the last several years and now yields a shade under 4%. Taiwan Semiconductor started paying dividends about five years ago and now yields 4.5%.  

GRR has served up returns totaling 65.2% (so far this year). In addition, the fund has outperformed its benchmark, the MSCI All Country Asia ex-Japan Index, by an average of more than 3.5% per year since Kimar-Sinha took the helm in 1999. In total, the fund has returned an average of 13.7% per year for the last five years. Yet, GRR currently sells at (a) discount to net asset value. [At Monday's closing price, GRR traded at a 4.5% discount to its net asset value—Editor.]

The excellent year-to-date performance is largely attributable to the fund's overweighting in China and nearby Hong Kong and Taiwan. Nearly 50% of the fund is allocated between the three regions.

After the run-up in the Asian markets, Asia will be more of a stock-pickers' market. To deal with this, GRR is honing in on the growth markets most poised to benefit in the coming years. As of the end of June, GRR allocated over 15% of assets in technology-related companies. As governments throughout Asia have implemented stimulus spending ranging from 3% to 15% of GDP, infrastructure upgrades will likely include spending to update technology—and GRR is positioned for this growth.

GRR also has a considerable position in bank stocks (8.7% of assets). Asian banks were not nearly as exposed to troubled assets as banks in the US and Europe, and stimulus efforts by Asian governments are helping to boost lending activity. GRR's bank holdings should continue to benefit.

Asian markets are no longer as cheap as they were, selling at valuations close to their historical averages. And although domestic demand is increasing, the region is still highly reliant on exports.

(But) there is still reason for near-term optimism. As major exporters, Asian companies should benefit from a sustained recovery in the US and around the world, (leading) to another leg up for GRR.

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