WF Asia Fund Ltd., a $209 million Hong Kong hedge fund, beat peers this year by betting on stocks that benefit from rising consumer demand and wagering against companies with flawed business models or fraudulent management.
The fund, which started trading in February 2001, returned almost 16 percent in the first seven months, according to the July newsletter that Hong Kong-based Ward Ferry Management Ltd. sent to investors and was obtained by Bloomberg News. The Eurekahedge Asia Long-Short Equities Hedge Fund Index gained 0.9 percent in the period, according to preliminary data from the Singapore-based data provider.
WF Asia has increased wagers on consumer staples and other defensive stocks as well as bets against technology companies and industrial machinery producers that are more affected by the economic slowdown across the world, according to the letter. Global economic worries and the European debt crisis have contributed to the more than 7 percent drop by the MSCI Asia-Pacific Index from its 2012 peak.
The fund invests in Asian companies traded on stock exchanges or over-the-counter markets as well as government and corporate bonds. Veronica Cheung, who handles investor relations at Ward Ferry, said its senior staff declined to comment, citing company policy not to comment on media reports.
Among the stocks that contributed to the fund’s performance this year was PT Tower Bersama Infrastructure, a Jakarta-based company that builds and leases telecommunication towers to service providers, according to Ward Ferry’s June newsletter.
PT Tower, CP All
Ward Ferry estimates that PT Tower can double its profits in the next three years partly because Indonesia has half of the number of towers per capita as the U.S. and has been increasing them at 26 percent a year since 2006, according to the letter. The stock has surged 18 percent since June 1 through yesterday.
Among its five largest holdings in July was CP All Pcl, the world’s third-biggest operator of 7-Eleven convenience stores, according to the newsletter. It also bought President Chain Store Corp., which holds the 7-Eleven franchise in Taiwan and owns stakes in Starbucks Taiwan and Shanghai, 7-Eleven Philippines and Shanghai, the newsletter showed.
“We believe convenience retail to be one of the most attractive structural growth sectors in Asia over the next five to 10 years,” according to the newsletter. “Sector growth is driven by rising affluence and market share gains against single owner-operated stores.”
The fund also made money from selling borrowed securities in companies with flawed business models or whose management teams are believed to have engaged in fraud, according to the July newsletter.
It shorted regional computer makers as tablet adoption in emerging markets will further weaken their sales and profit margins, according to the June newsletter. Companies it shorted also included a food retailer in Singapore, a distributor in Hong Kong and China, an Indian real estate management and development company, according to the newsletter, which didn’t identify any of the companies by name.
Ward Ferry was founded by Ward, former chief investment officer at Lloyd George Management, and Peter Ferry, Lloyd George’s chief marketing officer, in 2000, according to its website. It was ranked by New York-based trade journal Institutional Investor Asia’s fourth-largest hedge fund in 2006.
The company’s assets fell to about $630 million by March this year, from almost $2 billion four years earlier, according to the annual rankings published by Institutional Investor.
WF Asia Fund’s assets peaked at $1.28 billion in October 2007 before net asset value declined 32.5 percent in 2008 in its worst year, according to data compiled by Bloomberg. Eurekahedge Asia Long Short Equities Hedge Fund Index was down 22 percent in 2008, in its worst year on record.