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SCMP Reporter

As Asia's engine of economic growth continues to power ahead of other markets worldwide, companies in the region are looking further afield for capital to fuel their expansion.

  The potential of equity markets as a source of capital is drying up and this has resulted in convertible bonds gaining in popularity.

  Stuart Winchester, fund manager for Thornton Management (Asia), said the Asian convertible bond market had exploded from less than US$2 billion in 1993 to more than $25 billion today.

  He said this had presented fund managers with a host of new investment possibilities.

   Thornton recently won approval from the Securities and Futures Commission to sell its Asian convertible bond fund to retail investors.

  The fund, which was set up in 1994, had originally been intended for institutional investors.

  The $12.6 million fund carries an initial fee of 3 per cent and an annual management fee of 1.75 per cent of net asset value. The minimum investment is $2,000.

   Mr Winchester said that up to 80 per cent of the fund may be in convertible bonds but it currently only had 65 per cent.

   He said the flexibility these guidelines gave a fund manager improved his ability to minimise risk and move in and out of the bond market swiftly to reflect the changing investment environment.

  Such flexibility may be an advantage on the one hand but it placed the investor's money at the disposal of an individual fund manager's whim.

   Mr Winchester said that this should not be a concern for investors. First, they were paying for fund managers' years of expertise and professional experience. Thornton prided itself as a specialist in Asia's emerging markets, with more than $2.5 billion invested in the region and more than a decade of experience in managing funds from its Hong Kong office.

   Second, there were limits within which the managers must operate, both the tight regulatory framework in Hong Kong, and the internal limits set by the funds themselves.

  For example, Thornton's managers were restricted to taking no more than 5 per cent in any one company and no more than 10 per cent of the fund's capital could be invested in one stock.

  Nonetheless, the idea that unit trusts were safe investment vehicles solely because they were managed by large financial institutions was misplaced, he said.

    Mr Winchester emphasised it was crucial that investors took an interest in who was managing their funds because, within a group's investment framework, the decision to take a stake in any one company rested with the fund manager.

   Mr Winchester also manages other funds for Thornton, including the group's Indonesian fund, as well as value and income funds.

  He said prospects in Indonesia were good, with a positive interest rate outlook, despite the recent tightening in the United States, and uncertainty over the possibility of further rate increases.

  Taking into account a 3 per cent depreciation rate, Indonesian stocks offered high rates of real return and a number of companies represented good value, multiplying their trade price-earnings by 10.

    The concept of finding stocks at a reasonable price was a key part of Thornton's investment strategy in Indonesia and elsewhere and so was the driving factor behind value funds, he said.



More turn to convertible bonds for solid returns