Robert Akester, manager of the Delaware Emerging Markets Fund, is betting that a revival in the world's telecommunications companies will keep his mutual fund outperforming its...
Robert Akester, manager of the Delaware Emerging Markets Fund, is betting that a revival in the world’s telecommunications companies will keep his mutual fund outperforming its competition.
Akester has 14 percent of his fund’s $340 million in telecom stocks, up from 10 percent in 1999.
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Taiwan’s Chunghwa Telecom, Egypt’s MobiNil and Telefonos de Mexico were among the fund’s biggest holdings at the end of November. Many telecom shares are trading at six-year lows.
“They have been sold off so much by people who were disappointed by the bursting of the telecom and technology bubble,” Akester said from his office in London.
The Delaware Emerging Markets Fund has risen at an average annual rate of 13.6 percent during the past five years, exceeding the average 6.6 percent of competing funds, according to data compiled by Bloomberg.
The fund ranks fourth in its group of 51 funds this year, with a return of 27 percent.
The MSCI Emerging Markets Telecommunications Services Index fell at an average annual rate of 24 percent during the three-year period ended Dec. 31, 2002, and then rose 39 percent last year. The index is up an additional 23 percent in 2004.
The best-performing emerging-markets fund of the past five years was U.S. Global Investors Accolade Funds’ Eastern European Fund.
The fund, managed by Andrew Wiles and Stefan Bottcher, has advanced an average 28 percent a year during the period.
Akester and co-manager Clive Gillmore take a so-called value approach to investing in the emerging markets, seeking out companies whose share prices they consider cheap relative to estimated cash flows.
They consider possible political upheavals, regulatory changes and currency crises when making their decisions.
The managers avoided technology, media and telecom stocks during the bull market of the late 1990s. Today, telecom companies are in better shape and some are even returning cash to investors, Akester said.
Shares of Chunghwa, Taiwan’s largest phone company, are up 27 percent this year after losing more than half their value from 2000 to 2001. The company’s dividend yield is 7.1 percent, more than double the 2.69 percent yield of the MSCI Emerging Markets Index.
MobiNil’s stock is up 61 percent this year, trailing the Case Index, Egypt’s benchmark, which has more than doubled. Telmex, up 4.8 percent, hasn’t done that well by comparison.
“At some point, the cycle will turn, but for now we’re enjoying the ride” with telecom shares, Akester said.
Philip Schwartz, who has about 7 percent of the $1.1 billion that he manages for ING Investments in telecom stocks, is concerned that the industry is poised to encounter difficulties.
“In the longer run, there are technical challenges to telecom,” Schwartz said.
The Delaware fund has performed well because it doesn’t sacrifice safety for returns that may never materialize, Akester said. Altogether, the Delaware fund’s 99 holdings are spread among 23 countries.
As investors around the world pour money into China and India, Akester and Gillmore prefer South Africa, home to three of the fund’s top 10 holdings Sasol, the biggest oil supplier to South Africa; furniture-maker Steinhoff International Holdings and platinum producer Impala Platinum Holdings.
The FTSE/JSE Africa All Share Index has jumped 18 percent this year, reaching an all-time high on Dec. 2, the 12th-best performance among 60 global benchmarks tracked by Bloomberg.
“We’ve been consistently amazed that there seems to have been a very uniform avoidance of South Africa by a lot of emerging-markets managers,” Akester said. “For us, we can see some really great strengths in the place.”
Investors who are bothered by unpredictable swings in the currency markets should buy shares of companies that “export a lot,” he said.
Shares of Steinhoff have surged 59 percent this year and Sasol’s stock has climbed 16 percent.
When the Asian financial crisis hit in 1997, the fund wasn’t heavily invested in the region because risk analysis raised alarm bells about the combination of overvalued currencies and heavy borrowing in dollars, Akester said.
Thailand, where the crisis began, “looked like an accident waiting to happen,” he said. The fund eked out a 1.3 percent gain that year as the MSCI Emerging Markets Index dropped 13 percent.
Emerging-markets stocks are “an asset class that has the ability to scare people,” Akester said. “We’d much rather be taking advantage of other people’s panic than joining in.”