As manager ofDynamic Far East Value since 1996, Chuk Wong, vice-president and portfolio manager at Goodman & Co., Investment Counsel, experienced the Asian financial meltdown of the late 1990s first hand. While he's now enjoying the fruits of Asia's newfound prosperity, he hasn't forgotten the lessons.
"I had spent a lot of time following macroeconomic developments and underestimated the impact a financial crisis would have on individual companies," says Wong, who also managesDynamic Greater China, and weighs in on the Asian portion of a handful of Dynamic international portfolios. "In retrospect, I should have spent more time analyzing the vulnerability of individual companies to a major shock. Now, I consider a variety of worst-case scenarios before buying." A key priority is looking for companies that have low debt and a healthy hoard of cash. "I want to know a company is financially strong enough to weather the storm if major problems come along," he says.
Asia is now enjoying an economic boom, led by China but encompassing the entire region. The $28.1-million Dynamic Far East has achieved a return of 34.6% for the year ended March 31, just under the median return of 37.3% for the Asia/Pacific Rim Equity category but ahead of the 30.2% earned by the MSCI Far East Index (in Canadian dollars). For the five-year period the fund had an average annual gain of 4.6%, compared with the median return of 3.7% and a minuscule 0.81% for the index.
Wong spreads his holdings among 14 countries including Japan, Australia and New Zealand, as well as emerging tigers like India, Pakistan, Indonesia, Korea and Thailand. He prefers to limit his weighting in any one country to 30% of fund assets, but there's no "black and white rules."
Under certain conditions he might concentrate in just a couple of countries. He is attracted to low valuations, and recently purchased a couple of inexpensive banks in the less popular markets of Indonesia and Korea.
He's quick to point out that his investment style is "bottom-up." He doesn't predict political events in individual countries or exchange-rate moves, but he is conscious of maintaining diversification across industry sectors and balances export-oriented companies with domestically focused ones. He maintains a healthy mix of large-, medium- and small-cap stocks.
"We're leaning a bit toward small- and medium-cap stocks because the prices are better," he says. "We don't have a huge portfolio, and therefore we have the flexibility to invest in small companies without worrying about liquidity."
He likes to hold 40 to 45 names, and usually keeps the weighting of any one company to less than 5% of the portfolio. He sells when valuations get too high, or when he needs to raise cash for a better idea. His typical holding period is two or three years, and his annual turnover rate has been around 30% for the past few years.
Wong uses traditional value yardsticks such a price-earnings ratios, price-to-book, dividend yield and discounted cash flow to assess the attractiveness of a company's price. He also analyzes corporate strategy and assesses the growth outlook for the next two or three years.
"We're employing a value style in a growth region," he says. "A lot of companies in this part of the world have faster growth potential than in North America, but they're not as mature. Quality of management is still lagging."
Unlike some of his competitors, Wong operates from Toronto rather than a European or Asian location. He was born in Hong Kong and speaks Cantonese and some Mandarin. He graduated from the Chinese University of Hong Kong in 1984 with a bachelor of business administration.
After working for two years as a loans syndication officer at the Bank of East Asia, he moved to Vancouver to obtain a masters of science in business administration from the University of British Columbia in 1989. He began his investment career as a sales associate at Daiwa Securities Canada Ltd.
In 1991, he returned to Hong Kong for two years, rejoining the Bank of East Asia as an analyst and later as a fund manager. He then moved to Toronto and became an analyst with Gluskin Sheff & Associates Inc. from 1993 to 1996. He joined Dynamic's global equities team in 1996 when the first Asian investment boom was in full swing.
"I travel frequently to Asia to meet with company managers and analysts, and technology has made financial information accessible," Wong says. "Being in Toronto gives me the advantage of distance from all the noise. When I come into the office in the morning, Asian markets are closed, and I can sit down and digest what happened overnight. It helps me see things clearly, and with a longer-term perspective."
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/Q3KIND5VXRCNHHH6JQHCCYBSSA.png)
