Jonathan Pines is proving critics wrong that you can run a successful Asian fund from London.
The Hermes Asia ex Japan has seen his fund return 14.4% in the last 12 months, outperforming the benchmark of xx%.
Pines considers himself a contrarian investor, looking at companies out of favour by other investors. So he is having a field day in China with so many unloved stocks. But how can he justify running a fund from thousands of miles away?
He said: ‘’We get that criticism all the time. What we say to clients is that we are contrarian investors not data-driven so we don’t need to be on the ground level.
For some style of fund managers it can actually help to run the fund from outside the country to avoid all the negative news flow and instead concentrate on bottom-up stock selection.
‘’Even if you are based in Asia it doesn’t mean you are always on top of what is going on in the region. Asia is a very big area. You could be based in Hong Kong but that doesn’t mean you know what’s happening in Singapore for example,’’ he added.
The most obvious advantage to being based in the region is the time zone but with technology, email and flexible working hours it’s just as easy to stay on top of a region remotely.
So how does Pines get to know about the companies he invests in? ‘’We are based in London which is a major hub. A lot of management teams come through London on a very regular basis so we get to meet the people running the companies we are investing in.’’
Pines also spends about seven weeks a year travelling in Asia.
Does his strong outperformance in the last 12 months vindicate him being based in London? ‘’It’s not just the performance that supports our argument for being here. We are contrarian investors and it’s helpful to be away from all the negative noise.’’
The sort of companies and sectors he likes include cyclicals such as retailers and ports. ‘’The common thread is that they are widely out of favour. Cyclicals have earnings that go up and down and some investors will pay more for predictable earnings. Plus a lot of people have fallen out of love with China and we are finding lots of value, buying stocks that are very cheap.’’
His Hermes Asia ex Japan fund was launched in late 2012, with China one of his biggest country allocations. He is upbeat on China’s recovery prospects along with the impact of A shares.
Pines is avoiding Chinese banks as ‘’we do not understand the value of their assets’’, while his biggest holding is Chinese port operator Cosco Pacific.
He believes ports infrastructure will benefit from China’s shift to a consumer-based economy. ‘’If you have got a consumer-led economy it means that people in China are going to be consuming goods from other places in the world. So China will be importing as well as exporting a lot more. Ports benefit from both flows.’’
Another attractive element to investing in ports is that they are difficult to build because of lack of suitable locations, so competition is low. This gives them monopolistic powers at times when negotiating with docking ships.
