Looking over Asia from a Colorado peak
BOSTON — From his hillside home and office in Evergreen, Colo., money manager Anthony Cragg looks upon 14,500-foot Mt. Evans.
"I have a wonderful view," says Mr. Cragg, speaking from his home, 8,700 feet above sea level.
Cragg must figuratively see much further - as far as Asia. He's the stock picker for Strong Asia Pacific Fund, a fund whose shares have nearly doubled in value since September.
Investors, looking at reports by such mutual-fund analysts as Morningstar and Lipper, have noticed the outstanding performance of Cragg's fund and other funds invested in Asia.
They are putting money into Asia again. Strong Asia Pacific has assets of $82 million now, up from $17 million last autumn.
Asia funds are enjoying a ride back from the stock-market dive in Japan, Thailand, Indonesia, Singapore, Malaysia, and Hong Kong and other Asian countries in 1997 and 1998.
"They were tough years," Cragg says. His fund's shares plummeted 31 percent in 1997 and 3.1 percent in 1998.
Ready for turnaround
By the first half of 1998, Cragg had 35 percent of his fund's assets in cash - an unusually high cash level for a mutual fund.
"It was a time to keep your head down and try to preserve capital," he says.
But last summer Cragg figured many Asian stocks were priced at "unsustainable low levels - almost bankruptcy levels."
So in August and September, he put his cash back into stocks and was fully invested by October.
"It paid off," he says.
His fund's shares were worth $4.50 last September. They are about $8.60 today.
Cragg argues that the jump in Asian stocks in the past six months is only "the first leg of a very important move." He expects further gains when more investors, including global and international mutual funds, reallocate a bigger proportion of their portfolios into Asia -bailing out of a slumping Europe.
Now, Cragg says, Japan is "just beginning to get its economic act together." And other Asian nations, South Korea, Thailand, etc., are rebounding.
These smaller economies are like sports cars - quick to turn around, says Cragg. So he has his portfolio overweighted in these nations - 13 percent, for instance, in Singapore.
William Rocco, a Morningstar analyst, is more cautious about Asia funds. He describes an investment in them as "aggressive," that is, rather risky. Stocks cost more than they did last August.
That gain may be hard to replicate, he says. Much depends on whether Japan takes more steps to restructure its corporations and revive its economy.
Mr. Rocco suggests most investors may be better off putting a portion of their portfolio in an international fund, which likely will have a portion of its money invested in Asia. This avoids the "timing" problem of when it is best to invest in Asia.
Cragg has been managing Asian funds since 1981. He lived in Japan and Hong Kong for eight years. He's managed Strong Asia Pacific since its start in 1993.
For five years, Cragg "paid his dues" in Menomonee Falls, Wis., Strong's headquarters.
Then he moved to Colorado where "the air is thin" and the sun shines "310 days a year." He finds that professionally his mountainside perch "actually works very well." He uses fax and high-speed Internet connections to buy and sell stock and get information daily from sources in Asia.
"There is less distraction," he says.
Leaving Colorado retreat
Cragg usually travels to Asia at least twice a year. Over the years, he's visited most of the countries there 20 or 30 times.
He finds journalists covering Asian business to be "sources of reliable information."
Perhaps that view has been influenced by his wife, Claudia, a former columnist for the South China Morning Post in Hong Kong and author of four books on Asian business. Her knowledge of Asian business families, mostly Chinese, is helpful.
Many investment-firm analysts and economists travel to Denver, looking for business with the Janus group of funds. Corporate executives are also plugging their stock. So Cragg drives a half hour east from his home to meet the analysts before or after their presentations to Janus.
Cragg believes in active stock selection, decrying what he terms "closet indexing." That's when a fund buys mostly prominent blue-chip stocks in East Asia. Such a portfolio, he argues, simply mimics the market indexes in the region.
His portfolio for Strong Asia Pacific often includes stocks of smaller, less-known companies.
At the moment, he has about 21 percent of the fund's total assets in Japan, 13 percent in Singapore, 10.5 percent in Australia, 9 percent in Hong Kong, 6.5 percent in Thailand, and smaller percentages in New Zealand, South Korea, Indonesia, China, Malaysia, India, and the Philippines.
Though rated at the top in performance for Asia funds so far this year by Morningstar (see chart, right), Strong Asia Pacific gets only two stars because of its poor record during the Asia crisis. Cragg hopes that rating will go up soon with the spectacular 43.9 percent gain so far this year.
That performance, he says, "is not just a flash in the pan."
Cragg's approach to Asia
Invests aggressively in stocks despite region's recent economic turmoil.
Expects greater gains in the region as more investors return to Asia.
Seeks stocks with strong earnings potential overlooked by the market.
Targets smaller companies that dominate local markets, believing they offer greater potential growth than larger blue-chip companies.
Invests heavily in Japan, Singapore, Australia, Hong Kong, and Thailand.