Ken Tzeng runs the Fubon OTC Fund by sticking to what he knows best: valuation.
Tzeng, 38, uses the training he picked up as an analyst to dissect a company's earnings, book value and other financial disclosures. His stock-picking has led Fubon's NT$4 billion (US$119 million) OTC fund to an advance of 5.1 percent this year, making it the only one of 12 small-company Taiwan funds to post a gain, according to data compiled by Bloomberg.
"We have set up earnings and book-value bands for every core holding and make adjustments accordingly," Tzeng said in an interview from his office in Taipei. He and analysts at Fubon Securities Investment Trust Co (
Tzeng's best performer in the first half was Powerchip Semiconductor Corp (
"Powerchip's 12-inch wafer plant makes it Taiwan's most cost-competitive memory-chip maker, and it will be one of our long-term holdings," Tzeng said.
The Fubon OTC Fund has delivered a total return of 16.1 percent over three years, compared with a 12 percent advance for the Gre Tai index.
Tzeng's largest holdings at the end of May were Far Eastone Telecommunication Co (
AU Optronics is a so-called main-board stock while Novatek and Springsoft are former Gre Tai stocks that have graduated to the main board's TAIEX index. The OTC Fund's rules require Tzeng to hold a minimum of 60 percent of assets in over-the-counter stocks, including companies that have joined the TAIEX, according to Fubon Securities.
Among stocks he bought and sold in the first half were brokerages such as Yuanta Core Pacific Securities Co (
Tzeng said he bought shares of securities firms in January when their price-to-earnings ratios were less than eight and sold them in March and April when the ratios climbed to about 10.
"It's not bad taking profits of about 20 to 30 percent from holding these shares for just two to three months," he said.
His exit proved timely: The TAIEX slumped in March as President Chen Shui-bian (
"When shares have earned a lot for us but the valuations are getting too high, we must be quick to unload them," Tzeng said. At the same time, he sees buying opportunities after second- quarter declines of 12 percent in the TAIEX and 17 percent in the Gre Tai index.
The average price-to-earnings ratio of TAIEX stocks, now about 13 times earnings forecasts, according to Bloomberg data, is "the cheapest in more than a decade," Tzeng said. The average is down from 41 in 2003, 58 in 2002, and 18 in 2001.
Tzeng was head of research at Fubon before becoming a fund manager seven years ago. As well as the OTC Fund, which he has managed for five years, he also oversees the Fubon Aggressive Growth Fund, which had assets of NT$1.59 billion as of May 31, Bloomberg data show.
The OTC Fund, set up in March 1997, traded today at NT$4.33 a share, a 14 percent discount to its net asset value.
While smaller-company stocks involve more risk, "the returns can be outstanding," Tzeng said.
Tzeng said he's considering buying more shares of Powerchip and seeking to profit from rising global demand for mobile phones, flat-panel displays and laptop computers.
Taiwan Green Point Enterprises Co (
Tzeng said another habit he has kept from his days as an analyst is to get as much time as possible with executives whose stocks he's buying.
"I continue to do company visits almost every day," he said.
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