When West meets East, there's profit

Charles Brock: The Fund Manager
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The Independent Online

Charles Brock followed a conventional path into fund management, joining the investment department at Eagle Star straight after an economics and politics degree at the University of York. "I started work in September 1987, a month before the crash. So I was sitting at my desk wondering whether I had done the right thing."

He opted to specialise in Far East markets, and in 1994 moved to Electricity Supply Nominees, which ran pension funds for the electricity supply industry. Two years later, ESN was acquired by Foreign & Colonial Management and Mr Brock joined its emerging markets operation, where he has headed the Asian desk since May 1997.

He has been responsible for Foreign & Colonial Pacific, the group's specialist Far East investment trust, since February 1999, although he has managed the non-Japanese element of the portfolio for three years. "It is an unusual fund in that it is pan-Asian. It includes Japan as well as the rest of the region, which means it has a broad spread of investments, from India to Japan and China down to Australia. There are only three other funds in its AITC sector.

"It doesn't appeal to big institutions, but does to smaller institutions and private investors because they don't want to take decisions about how to allocate assets between Asian markets. This fits in with the Foreign & Colonial approach to managing investment trusts. We believe they are vehicles for private investors."

Mr Brock invests the non-Japanese element, and his colleague, Stephan Rheinwald, selects the Japanese holdings. The trust's performance has benefited from the improvement in Asian markets over the past 18 months.

"We did particularly well in Japan. Our benchmark for the trust was 50 per cent Japan and 50 per cent the rest of Asia and last year we outperformed the Japanese index by 40 per cent. This was due to excellent stockpicking by Stephan, who concentrated on the 'New Japan' stocks. He made a lot of money out of Softbank but sold before the price collapsed. At the same time, the non-Japanese element also outperformed the rest of Asia by 6 per cent."

Reviving economic fortunes in the region have caused revision of the trust's investment strategy. "The previous manager had established a defensive portfolio, with lots of cash and bond holdings. That was the right thing to do at the time, due to the crisis that Japan, in particular, was suffering. But we have probably been a bit slow in putting cash back into the equity market.

We started the last company year (end of January 1999) with cash holdings of 24 per cent and a year later our gearing was down to 8 per cent.

"We have been careful about how we have put money back into the markets and have favoured Japan, particularly the 'New Economy' stocks. We have also put a lot of money into Taiwan at the end of the year as well as going back into Malaysia last May, a year ahead of it being readmitted into the regional indices, When that happens next month, we would take some profits."

But Mr Brock admits: "We got Hong Kong wrong. The asset allocation was right but the Hong Kong market has been driven by four or five stocks, telecoms and dot.coms, and we didn't chase that. We didn't get money into the market quickly enough at the start of the year.

"We have an independent and knowledgeable board, which does not tend to interfere, but does encourage us to take clear positions, overweight or underweight, relative to our benchmark. We are overweight in Japan, with 60 per cent of the portfolio invested there, which, historically, is very high for a pan-Asian fund.

"We are very bullish on the Japanese market because the official figures are misleading. The economic recovery is patchy, but Japanese restructuring is for real and there is a move towards realising shareholder value. It is going to take time, but it will happen and the government will also keep its loose monetary and fiscal policies, which are essential for the recovery."

He adds: "We are overweight in Korea, for the same reasons as Japan - restructuring, corporate profits growth, etc - but they are a year further back. In general, we like Asia, but in the short term the markets are vulnerable to what is happening in the US. Thailand is still going down because it has severe internal problems. The region is heavily dependent on electronics and if there is a downturn in demand there may be problems. But the outlook within Asia is positive."

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