The asset management company of Select Opportunity Fund and
Dana Izdihar fund is Malaysia-based Hwang-DBS Unit Trust Bhd.
DBS Asset Management is the advisory company to Hwang-DBS.
Teng has 12 years' experience managing absolute return mandates
and David has been managing institutional funds for seven
Hwang-DBS Select Opportunity and Dana Izdihar funds are long-only
(directional) but are not traditional mutual funds. Both are
not beholden to a benchmark index and aim to generate positive
returns just like hedge funds, except they never short.
Look for performance and other key details for these winning
funds in Eurekahedge's Long-Only Absolute Return Fund Directory
2004, Asia-Pacific and Global Emerging Markets Edition,
to be published August/September 2003.
Interview with Teng Chee Wai and David
- Can you explain the absolute return approach of the
Select Opportunity Fund and Dana Izdihar long-only funds?
Asset allocation is key and we arrive at our asset allocation
decision by taking into account global and regional flows,
and data. We have access to global and regional research
including independent research, and these have contributed
to our decision making process. Where opportunities present
themselves in specific sectors, we would participate in
that sector to enhance returns. Otherwise, our stock selection
criteria for our core holdings are based on selecting
companies with the following three criteria: (1) strong
management; (2) growth; and (3) strong cash flow. Should
one or two of the three criteria be not present, we may
participate in opportunistic trades provided that there
is a catalyst to a re-rating of the stock e.g. turnaround
or possible corporate activity or simply having been over-sold.
- How do you manage downside risk -- do you hedge long
positions, for example using warrants, options, futures
We do not currently use options (and other derivatives)
to hedge against downside risk. Our only avenue is via
raising cash and/or adopting a more defensive posture
for the portfolio.
Index funds and actively managed traditional funds
continue to attract the bulk of long-only institutional
monies. Yet institutions increasingly appear willing to
invest in long-only absolute return funds - why are these
funds gaining popularity?
The past 3 years have been difficult years for the equities
markets and investors are beginning to realize that "outperforming
the index" does not necessarily mean that returns
are positive as well.
- The rapid run-up in share prices on Wall Street since
mid-March until July re-energised global equities markets.
Yet, this bear market rally had more to do with huge cash
inflows then positive economic news. What is your take on
the current volatility in equity capital markets and in
which ways, if any, do big swings affect the performance
of Hwang-DBS Select Opportunity and Dana Izdihar funds?
We believe that the next six to 12 months will be positive
for equities markets due to reflationary efforts worldwide.
This could potentially be a precursor to an economic recovery.
Markets often recover before the economy. We are of the
opinion that we should see cyclical growth start to pick
up. Volatility is not unusual at this initial stage of
a market upswing (although it has receded of late).
Big swings could have considerable positive and negative
impacts on both the Hwang-DBS Select Opportunity and Dana
Izdihar funds. As stated above, asset allocation is a
key factor in our investment performance. Therefore, dependent
on our equities exposure, big swings could be very pleasant
or less pleasant, depending on whether we got it right
- What are the asset allocations of SOF and Dana Izdihar
currently(July 2003), and what are the largest cash positions
that you could comfortably accept for these funds?
Both funds are currently about 80% invested in equities
with the balance in cash. This is down from above 90%
since a month ago. The largest cash positions we would
be comfortable with is about 50%.
Is it difficult to get investors during bullish
market phases like the one just experienced to allocate
a portion of their portfolio to SOF and Dana Izdihar?
Do Malaysian investors accept that diversification through
long-only absolute return funds can reduce portfolio risk
and improve the chances of superior overall performance?
Investor behavior is such that inflows increase when
the market is rising. We think that the choice of funds
they invest into is highly dependent on investment performance
as well as their comfort level/relationship with the agent/distributor
of the fund.
As far as acceptance of long-only absolute return funds
are concerned, we think that it has increased and should
continue to do so provided performance is satisfactory.
- Asian stock markets today show a much stronger correlation
with their Western counterparts. Are these stronger correlations,
in particular between the Kuala Lumpur stock market and
western markets, of any concern to Hwang-DBS?
We do monitor this. However, given the manner in which
we choose our investments, we believe that there are always
opportunities regardless of the seemingly high correlation.
In the near-term, we expect the correlation to remain
fairly high. However, we hold the view that the Asian
economies would fare better than their western counterparts
and this should be reflected in the stock market's performance
as well. In other words, we expect a reduction in the
- The ringgit has been pegged at MYR3.8 per USD for the
past three years. Given expectations for extended dollar
weakness against the yen and euro, and that Malaysia's top
trading partners are Japan and the EU, do you view the ringgit
peg as an advantage for investors of Hwang-DBS's ringgit-denominated
There are both pros and cons to the Ringgit peg. Overall
however, a weaker ringgit should benefit and increase
the liquidity in our [the Malaysian] economy and consequently
the [Malaysian] stock market. As well, given the profile
of our investors (i.e. mostly domestic), this should benefit
them as currency translation losses do not apply to them.
- Both the Select Opportunity and Dana Izdihar funds
target returns of 10% per year but do not charge performance
fees. Did you decide that charging fees beyond initial and
management fees is an impediment to the development of your
We did not think that such a structure would be palatable
to Malaysian investors at the point of our launches [SOF,
September 2001; Dana Izdihar, October 2002]. This is an
idea we intend to bring up with the regulatory authorities
in order to gauge their reception to such a scheme.
- Does Hwang-DBS have plans to launch additional long-only
absolute return funds?
An incentive fee-based fund is an idea we are toying
Hwang-DBS Unit Trust
603 2142 1881