Tundra spots opportunity in Asian data
Swedish manager Tundra Fonder has launched a quants based Asia ex-Japan fund to take advantage of the growing quality of information coming out of the region.
Tundra Fonder, the Swedish boutique manager has for some time been building up its business around the ideas generated by emerging and frontier markets, but aiming to do so via niches that are not being served by others, such as investing in Pakistan.
The manager has now added another angle to its business by introducing a broader Asia ex-Japan fund called QuAsia, which seeks to offer investors access to nine key markets in the region and which offer a spread of more mature stages of development than pure frontier markets – India, Singapore, Malaysia, Indonesia, Thailand, Philippenes, South Korea, Taiwan and HK/China.
Like Tundra’s other funds, QuAsia is Ucits (IV) compatible. Where it differs is in its approach: this is a product based on quantitative analysis by machine rather than relying on an active fund manager’s stockpicking abilities. But, while dependent on computers to analyse a universe of some 1,700 companies across the nine markets, it still takes a long only approach and is not a hedge fund.
The benchmark is the MSCI Asia ex-Japan index.
Markets in this universe are becoming increasingly easy to invest in for foreigners, with good liquidity and access to a broad spectrum of sectors and subsectors – and particular strengths in areas such as IT companies, healthcare and insurance, says portfolio manager and partner Jon Scheiber.
The reason for approaching these markets via a quantitative model rather than traditional management is to a large degree down to the sheer size of the opportunity.
This is a large region geographically, and the amount of information available means that any management approach relying on in situ information gathering would necessitate considerable investment, such as staff on the ground. Tundra argues that even those managers that can afford this find it difficult to outperform the market.
“Asia today is such a vast universe, both in terms of the number of listed companies as well as the diversity of countries and subsectors represented, that a traditional fundamental investment process has become very resource heavy. To properly cover Asia requires bigger teams and more local presence year-by-year,” Scheiber says.
The QuAsia approach relies on a model based on factors that Scheiber believes will enable the fund to outperform the market. This in turn suggests that the quality of data coming out of the region is now such that it is possible to support this type of product.
One of the factors is momentum – the model likes momentum in Southeast Asia – the expectation is that this region will continue to do well with Indonesia, Thailand and Malaysia continuing to benefit from their respective structural stories rather than relying on hugely cyclical and export orientated opportunities, as might be found in South Korea or Taiwan, which the model is saying should be undwerweighted.
Valuation is another key factor as is profitability. Further specifics are proprietary, Scheiber says, restricting the amount of information on the model that he is able to share.
Another way to Asia
Tundra’s fund is a different way to play Asia, Scheiber admits. There may be many Asia funds already in the market, but not in this way. It is one of the few Asia quants funds overall, but it also seeks to differentiate itself from other such products, which he says often take a hedge fund approach.
Another differentiator is price; the idea is to compete not only against other actively managed funds, but stand as an alternative to ETFs too (see box above).
“It is becoming more important to show the customer a suitable level of risk and what you are contributing,” Scheiber (pictured) says.
QuAsia carries a management charge of 0.8% and a performance fee of 20% of any outperformance against the benchmark MSCI Asia ex-Japan. The annual charge is lower than those typically charged against some of Tundra’s other products, such as Nigeria and Sub-Sahara, also recently launched, which cost 2.5%. Tundra says the management charge is half that of most Asia funds.