Veteran Korea Manager for Invesco Says It’s Time for Defenseby
Simon Jeong sticking to shares least tied to economic swings
Manager shuns industrial giants that have rallied this year
As instability bubbles anew in global markets, one manager is sticking with boring.
Simon Jeong, whose $220 million Invesco Korean Equity Fund has trounced almost everyone over the past three years, sees no reason to give up on the stocks that are responsible for his success. He’s holding on to shares least affected by economic swings -- such as companies that sell diapers, food seasonings and noodles -- and bypassing industrial giants that have rallied in Seoul since February.
While Jeong’s stance has cost him in 2016, relegating him to the bottom rung of managers in South Korea’s market with a 14 percent loss, it’s barely dented his longer-term record. He’s beating 92 percent of its peers since 2013 with a 6.2 percent annual return.
“There’s no change in our investment style regardless of the latest rally of cyclical stocks," said Jeong. “I prefer buying and holding quality stocks for a long time."
Volatility has returned to equity markets amid concern central banks are reluctant to boost stimulus even as the global economy sputters. The Kospi index fell the most in more than two months last Monday as Samsung Electronics Co. had the biggest drop since 2012. The Korean market regained some ground on Monday after a three-day holiday.
Jeong still likes Hanssem Co., a retailer of kitchen furniture that is up threefold since September 2013 even with a 34 percent retreat this year, and convenience store chain operator BGF Retail Co., which has soared 340 percent since its listing.
Jeong, who worked at Franklin Templeton Investment Trust Management Co. in Seoul for a decade starting in 1996 when it was rare for a Korean native to work for a foreign asset manager, advocates a slow-and-steady approach to insulate his fund from fickle sentiment.
“When investing in cyclical stocks, the timing of buying and selling is important," he said. “If you miss the investment timing in cyclical stocks, the return would be less than that of holding a quality stock for a long time."
Going against the herd, Jeong shifted his investing style a few years ago to move away from stocks sensitive to economic cycles. The transition in his strategy came while South Korea’s expansion slowed in 2011 and 2012.
"We don’t respond to the current markets," he said. "I don’t look into the macro-economy much when I invest."
Not everyone agrees. Kim Jung Hyun, a strategist in Seoul, says stocks like the ones Jeong favors will come under pressure as the Federal Reserve moves to raise U.S. interest rates.
"Uncertainties will grow starting in the fourth quarter," said Kim, who works at IBK Securities.
Among competitors, Macquarie Investment Management and Franklin Templeton are piling into South Korea’s large-cap stocks tied to the economic cycle. Those companies have benefited amid signs of stability in commodity markets and China’s economy, and a view that global economic growth is improving with the U.S. nearing full employment. South Korea’s economic growth in the second quarter was better than expected and policy makers stepped up fiscal and monetary stimulus to boost growth.
Posco, South Korea’s largest steelmaker, has rallied 32 percent this year after tumbling 40 percent in 2015, and Hyundai Heavy Industries Co., which fell 79 percent over the past two years, is up 55 percent after posting the highest operating profit in three years.
Jeong says he is comfortable with valuations in his portfolio that are several times the average for the Kospi index. Dongsuh Cos., a maker of vegetable cooking oils, trades at 2.6 times price-to-book value, while BGF Retail, the operator of the country’s major convenience store of CU, trades at 5.6 times. That compares with the Kospi’s 0.9 times.
"When foreign investors talk about Korea, they mostly see the Korean economy and some big companies only," he said. "But there are quite a lot of good companies in Korea, running some independent businesses."