DWS Investments aims to help Singaporean investors capitalise on financially sound but underpriced Asia-focused companies with its latest fund — DWS Asia Select.
The retail mutual fund business of Deutsche Bank, DWS Investments, will provide the opportunity for investors to access a portfolio of such companies at near-historic low valuations which has never been more apparent in recent times.
"While the idea of generating gains from timing the markets is appealing, the ability to do so accurately eludes most investors," said a statement by DWS Investments, whose valuations, it points out, provide a reliable guide to getting in and out of stock markets.
Deep value emerging
The precipitous falls of global equity markets in the last 16 months has brought asset valuations to multi-decade lows. In January 2009, the global equity market's trailing price-earnings ratio of approximately 10 indicated that it was at its lowest valuation in more than 20 years.
Ed Peter, Head of Deutsche Asset Management, Asia Pacific and Middle East, remarked, ''With stock prices trading at multi-decade lows against earnings and even book values, deep value has clearly emerged in the markets. For the patient investor with discipline and a long-term horizon, this is the time to capitalise on some very solid wealth-building opportunities. The crux, however, would lie in differentiating true value, from value traps.''
''The current phase of the economic cycle is starting to provide good entry points for value-oriented investors, including those who are keen on blue-chip and large-cap stocks. DWS Asia Select was conceived to make the value concept more widely accessible to a broad base of investors, as it complements our existing value investment products,'' added Scott Jaffray, Chief Investment Officer of Deutsche Asset Management, Asia Pacific and Middle East.
The changed market landscape of today warrants the deployment of a value approach to investing. Thus the current market environment is prompting investors to reassess the relevance of momentum-driven growth investing strategies that have predominated in previous years. DWS Investments believes that times are calling for a return to a focus on fundamentals.
''Many people see value as the opposite to growth; we do not view it so simplistically. Investors should be seeking to buy companies that are likely to be materially bigger in the future for less than their present intrinsic value. That is, in other words, buying growth at value prices,'' commented Richard Jones, Lead Fund Manager for DWS Asia Select.
Jones added, ''With DWS Asia Select, we construct a portfolio of '60-cent dollar' companies by purchasing their shares or assets at a significant discount -- usually 40 to 50 percent -- to intrinsic value. The discount is commonly known as the margin of safety and it allows investments to be made with minimised downside risk. We believe that as prices and intrinsic values converge over time, potential positive returns could be realised.''
Value in Asia
Recent weak investor sentiment in the markets stems from a bleak economic outlook and deteriorating corporate fundamentals. However, from a long-term perspective, current share valuations have rarely appeared more attractive; the MSCI Asia ex-Japan is trading at a price-to-book ratio of 1.3 times, against a price-to-book range of between 1 to 3 times between the years of 1974 to 2008.
''We believe that the expected reduction in earnings of Asia-focused corporates should only be temporary rather than permanent. In constructing the value portfolio, we have considered important characteristics, such as -- low price-to-earnings and price-to-book ratios, sustainable business models, strong free cash flows, healthy balance sheets and a track record of consistent growth in earnings and dividend payouts. We found that many Asian corporates score highly on these counts,'' noted Jones.
Asia represents compelling value, given the relative strength of its government, corporate and personal balance sheets. Indicators of financial soundness in most emerging markets compare well to those of developed countries. In an International Monetary Fund report published in October 2008, it was observed that net debt-to-equity ratios improved most dramatically in Asia. With the region's vast population and burgeoning middle class, Asian demand may well be a key source of stimulus for future global production, as developed economies reduce their consumption and their contribution to global growth.
The quest for value
On the back of the new fund launch, DWS Investments has published a paper entitled The Value Quest -- A Universe of Opportunity. The paper aims to explain the concepts and empirical evidence supporting the effectiveness of applying the value strategy over time. In particular, it highlights the relevance of a deep value investment approach within the current investment climate. A copy of the deep value paper is available for download at www.DWS.com.sg.
The DWS Asia Select fund is an all-cap, long-only equity fund that builds its portfolio through active stockpicking and quantitative screening, followed by in-depth qualitative analysis, to ensure that the portfolio is better-placed to generate above-average long-term returns.
DWS Asia Select is available to investors in Singapore through leading distributors including: Aviva Direct, CIMB, dollarDEX, Financial Alliance, finatiQ, Fin-exis Advisory, First Principal Financial, Fundsupermart.com, HSBC, iFast Financial, MAA Financial Planners, Navigator, Phillip Capital and RBS. Available in both Singapore and US dollar share classes, an initial investment starts from S$1,000 or US$1,000.3
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