The Hong Kong-based pan-Asia LH Asian Arbitrage Fund has continued to deliver a steady performance, notching a 2.1% gain in October, mostly generated from its Asian convertible bond positions.
The multi-strategy fund benefits from less efficient markets in the region compared to markets in the US and Europe by arbitraging those inefficiencies to provide investors with basic returns and to minimise downside risks.
The fund has gained every month so far this year, except in May, and is up 15.1% year to date. It has delivered an annualised return of 10.53% since launch in January 2002.
About 2.55% of its October gains came from convertible bonds, while its share class arbitrage strategy contributed a 55 bps loss.
The fund benefits from less efficient markets in the region compared to markets in the US and Europe, by arbitraging those inefficiencies to provide investors with basic returns and to minimise downside risks.
During October, its heaviest allocation by geography was in the China/Hong Kong market, which is over 60% of the portfolio, followed by Taiwan, Japan, India and South Korea.
Portfolio manager Mike Djen employs event-driven and relative value strategies to capture market upsides. In 2008, the fund registered a loss of 12.36% but made a 45.43% gain in 2009.
Djen believes the economic growth across Emerging Asia is slowing down and without new growth drivers, sees “no strong reason to invest in Asian equity markets in the next few years.” In contrast, he points out, Asian corporate balance sheets are much better than many of their Western counterparts.
The fund manager sees mispricing in credits, discounting a sharp slowdown, and believes that investors should focus more on Asian convertible bonds and credit markets.