Anthony L.T. Cragg, manager of of the $115 million Strong Asia Pacific Fund (SASPX), says that his mutual fund is dominated by value stocks, a lingering result of the Asian financial crisis that began in 1998, but that he is beginning to look for shares of faster-growing companies.
"Asia fell off the radar screen," Cragg said from his home office in Evergreen, Colo. "Lots of names have been ignored" by investors and analysts, he said, adding: "Many of these economies are just turning the corner, and valuations are still cheap. But as the economies heat up, we're getting into more growth stories."
Cragg, 47, works for Strong Capital Management, the fund's adviser in Milwaukee. Strong's trading practices are under investigation by Eliot Spitzer, the New York attorney general, who said that the company had allowed a hedge fund, Canary Capital, to engage in frequent trades, known as market timing, to the detriment of other shareholders. Richard S. Strong, the company's chairman, said it had hired outsiders, including the Deloitte & Touche accounting firm, to conduct an internal review of the accusations. He said that Strong would provide restitution to any affected shareholder "if it is determined that the transactions by Canary caused a monetary loss to the funds referenced in the complaint.
Cragg picks the 60 to 70 stocks in the Asia Pacific fund from more than a dozen countries, including China, Japan, Malaysia, India, Thailand and Australia, and says he uses no computer screens to identify purchases. Instead, he relies on his knowledge of the region. (He lived and worked on and off in Japan and Hong Kong from 1977 to 1986.)
He is betting on a recovery of the travel and leisure industries in Asia, he said, and has been investing in hotels, airlines and other tourism-related companies. He has also invested in natural resources companies, expecting heavy demand for materials as manufacturing grows in China.
Investing in Asia poses particular challenges, Cragg said, because analysts have less comprehensive information than they would in the United States, and the accounting is often murky. Still, he said, there are good values to be found.
Cragg began buying shares of the Hainan Meilan Airport Company in April. The company, whose shares trade in Hong Kong, operates an airport on Hainan, a tropical island off of mainland China that he calls the "Hawaii of China." "More Chinese have the means, the money and the freedom to travel," he said.
He paid 3.82 Hong Kong dollars a share, on average, for the position. On Friday, the stock closed at 5.45 Hong Kong dollars.
In September, he started buying shares of Royal Garden Resorts, traded in Bangkok. He paid 15.96 Thai baht, on average, for the shares, which now trade at 17.3 baht.
Royal Garden now has eight hotels in Thailand under several brand names and plans to open three others in Asia in the next two years, including two Four Seasons hotels. The company should benefit from the rebound in Asian travel, he added. The growth of Jubilee Mines, an Australian producer of nickel ore, should be driven by increasing demand, particularly from China for steel manufacturing, Cragg said. Moreover, analysts project that nickel prices will rise about 20% in 2004, "and that has a leveraged impact on its bottom line," he added.