Monday October 08, 2012
by Mark Salzinger, editor The No-Load Fund Investor
For several years last decade, Andrew Foster was unusually successful at providing impressive returns with limited volatility by investing in Asian stocks that pay dividends, along with convertible bonds.
Matthews Asian Growth & Income, which he managed for six years, just about doubled its shareholders’ money during his tenure. Matthews Asia Dividend, which he co-managed for more than four years, performed even more impressively, with extraordinary relative returns in good and bad years.
So, it was of particular interest to us when Foster left Matthews and founded Seafarer Capital Partners in 2011, followed by the launch of a mutual fund, Seafarer Overseas Growth & Income (SFGIX), this past February.
As he did with his former charges, Foster emphasizes Asian stocks of any size. In fact, much of the investment approach is the same: a search for growing companies with solid financials, shareholder-friendly management, and rising dividends backed by sustainable cash-flow growth spanning many years.
Foster emphasizes not fast-growing stocks, but instead those with growth in the range of 7% to 12% annually. He says that such moderate growers tend to garner insufficient attention from other investors in the emerging markets, and thus sell at attractive valuations.
As for the dividends, while they add to total return, they also provide ballast in the case of a protracted bear market.
Foster stresses that he is a bottom-up investor, meaning that he picks the stocks based on their individual fundamentals.
At the end of August, East and South Asia accounted for 70% of assets, led by China/Hong Kong (19%) and Singapore (13%) but spread among more than 10 countries.
While not all of the positions in Singapore and Hong Kong are particularly inexpensive at current prices, they tend to have solid finances, attractive dividends, excellent corporate governance and strong likelihoods of moderate growth over many years.
Outside Asia, the fund has significant positions among its 40- some holdings in Poland (9%) and smaller totals (4% to 5% each) in Mexico, Brazil, Turkey and South Africa.
Compared to most other emerging-market oriented funds, Seafarer Overseas Growth & Income has much more in midsize and small Asian stocks, with higher dividends and more emphasis on serving their domestic economies as opposed to export markets.
Also, because commodity-oriented companies often lack the sustainable growth characteristics Foster looks for, the fund is unlikely to have much in the way of these stocks or in such large commodity exporting countries as Australia and Canada.
Currently available directly from Seafarer and also from Schwab and Fidelity Brokerage, the retail shares carry a net expense ratio of 1.60% (a little higher than we’d like, but we wouldn’t let it deter you) and a minimum initial investment of $2,500.
Since inception, the fund is up about 8.6%, while the average diversified emerging market fund is down about 2%.
Learn more about this financial newsletter at Mark Salzinger's The No-Load Fund Investor.