Small fund manager from Taiwan beats Wall Street giants
Reuters in New York
One of the best stock pickers in America last month was a 56-year-old Taiwanese immigrant working out of a small office in suburban New Jersey, 40 kilometres from Wall Street.
David Y.S. Chiueh, the manager of the tiny US$10.5 million Upright Growth Fund, was the only large-cap growth manager among the 1,781 tracked by Morningstar to post a positive return for this year up to February 5.
Though his 1.1 per cent gain was not large in itself, Chiueh’s fund outperformed the average of his category by nearly 5 percentage points and outshone the popular US$108.5 billion Fidelity Contrafund by about 4 percentage points. The broad stock market tumbled 5.2 per cent.
The month-long performance doesn’t appear to be a fluke. Over the last five years, Chiueh has quietly outperformed the benchmark Standard & Poor’s 500 index by an annualised 6.5 percentage points a year, a performance that puts him in the top 3 per cent in his category of large-cap growth funds.
It’s a strong track record for a fund manager who eschews pricey terminals and instead relies on public sources like MSN for financial data, and only made the jump to portfolio manager after working for more than a decade as a financial planner.
Chiueh, who moved to the United States in 1985 and earned a masters in business administration from Rutgers University six years later, manages about US$20 million in all, mostly in accounts held by other Asian-American immigrants.
His outsider status is a source of pride. Many Asian-Americans who work in finance are in support roles rather than management positions, Chiueh said.
“If I’m successful, maybe I can be a role model for minorities,” he said.
His portfolio of 27 stocks is top-weighted, with nearly half his assets in his five largest positions, including Apple, Silicon Motion Technology, Manitowoc, SunEdison and Starbucks.
In a nod to his past career as a financial adviser, his turnover is low, at less than 5 per cent a year, which minimises capital gains taxes for investors.
Analysts, many of whom had never heard of the fund, said Chiueh’s style of making large bets on select companies has worked well but may give some investors pause.
“When the stock selection works, it works really well. When those stocks are out of favour, this fund has [lagged] and will continue to lag, because it is so concentrated,” said Todd Rosenbluth, director of mutual fund research at S&P CapitalIQ.
With just a fraction of what most mutual funds have under management, Chiueh’s expense ratios are well above normal. Most investors will pay US$2.17 per US$100 invested, roughly double the cost of the average actively managed mutual fund.
Chiueh credits his success to a willingness to move between investment styles when the market warrants it.
During the 2009 financial crisis, for instance, he emphasised value by picking up high-quality companies at low prices and holding them. He bought shares in Starbucks in early 2009 at about US$10 per share and sold some of them late last year when they crossed US$80 per share.
At other times, he looks for earnings growth and will hold on to companies even as their price-to-earnings multiples jump higher.
“Like a horse, I’ll keep it running until the horse wants to stop. If he says I’m tired, then we sell,” said Chiueh, who said he’ll typically begin selling once a company’s P/E ratio rises above 30, a figure about double the average of the broad stock market.
Chiueh has about 30 per cent of his portfolio in cash. He began selling some of his positions in strong performers like Starbucks in August after the S&P 500 had rallied 15 per cent while on its way to a nearly 30 per cent gain for the year.
He screens companies in large part through what he calls common sense.
“Chipotle, I missed that one, but if you go to the store, you can see that it’s working, and you don’t need a financial background,” Chiueh said.
He has held on to his shares of Apple despite the company’s laggard performance, for instance, because he thinks that its recent losses in the smartphone marketplace to Samsung are only a pause in the company’s long-term growth rate.
“[Apple] is just temporarily sitting down and sitting back” until it is in a position to release new products, Chiueh said.
Most recently, he has added a position in DirectTV, based on his expectation that the company will continue to expand its subscriber base in Latin America and China.
“The market has given the company a failed valuation, so far, but its market share looks strong,” Chiueh said. DirectTV trades at a P/E ratio of 13.6, slightly below the average of the market as a whole, and is up 11 per cent since Chiueh began buying shares.
Unlike most other large-cap growth managers, Chiueh will also own exchange-traded funds that pay off when the market falls as a way to hedge against losses.
The ProShares Ultra Short S&P 500 fund, for instance, makes up about 1.8 per cent of his assets, a position slightly larger than his stakes in Bank of America and MetLife.
After last year’s large stock rally, Chiueh is now most focused on avoiding another financial crisis like the one in 2008-2009.
“If I can do that, I can say I did a good job,” Chiueh said. “It is too early to make a judgment.”