Azure Capital's stock portfolio up 17% since inception: CEO

Singapore

REVEALING positions in electronics, engineering and property plays, and a sterling portfolio performance of 17 per cent since inception, Azure Capital chief executive Terence Wong said a "healthy correction" might be on the way for the Singapore market.

"I expect a correction in this quarter actually ... but I don't see companies diving 50 to 60 per cent except those that went crazy and ballistic, like up 10 times," he said on Friday afternoon. A correction would mean he has a chance to accumulate more, he said.

Mr Wong was speaking at a media event on Friday, seven months after he launched his Azure All-Star Fund at end-August 2016.

Since then, assets under management have grown to S$100 million. Under half of the money has been invested. The fund currently owns 18 companies in Singapore, with each position at about S$1 million to S$2 million.

"I'm in the process of accumulating 10 stocks and am eyeballing another dozen companies," he said.

For the fund, Mr Wong used to own positions in counters like Sunpower Group, Jadason Enterprises and Moya Holdings. But a sharp rally has led him to sell them for a 20 to 50 per cent profit.

Now, his largest positions include large-cap Global Logistic Properties and far smaller counters like Avi-Tech Electronics, Fu Yu Corporation, and KSH.

Fu Yu, a plastic injection moulder, "must be the most boring company out there". The plastic injection moulding industry has been consolidating, and Mr Wong said he is happy to collect dividends while waiting for the company to realise its potential for being taken over. He thinks the counter has another 15 to 20 per cent to go from current levels.

Avi-Tech Electronics, a printed circuit board manufacturer, can rally a little bit more than that, he said. Avi-Tech is riding on the Internet of Things boom. Like Fu Yu, it has downside protection due to a large cash position, he said.

Another holding is PEC, which provides engineering, construction and maintenance services for oil and gas players. It has a large cash balance, is run efficiently, and order enquiries have been strong, Mr Wong said.

He also owns shares in Sing Holdings, a niche property developer. Trading at under 0.6 times book value, the company is developing a Fernvale project where another nearby condo has sold well, he said.

Another position highlighted was Spackman Entertainment Group, a loss-making movie production house which he thinks will turn profitable in the first three months of the year.

Mr Wong was formerly research head of small-cap specialist RHB Research. He launched his fund last August with seed capital coming from anchor investors like Oxley Holdings founder Ching Chiat Kwong, Oxley deputy CEO Eric Low, and Super Group chairman David Teo.

Since then, global financial markets have picked up on the back of a cyclical economic recovery.

The net asset value of his Azure All-Star Fund is now up 11 per cent, which is lower than his stock portfolio performance due to a drag from uncommitted cash.

The biggest risk for his portfolio is market risk and not company risk, he said.

Speaking at the fund media event, Singapore Exchange (SGX) executive vice-president of equities and fixed income Chew Sutat said two structural trends can favour small and mid-capitalisation stocks. The move towards passive index investing means many investors are just lazily following index stocks. Stocks outside indices can be mispriced or underpriced, he said.

Another trend was regulatory changes in Europe, known as MiFID II (MiFID: Markets in Financial Instruments Directive), forcing research costs to be separated from trading commissions.

Amid more intense competition for research products, investment banks might only focus on covering the largest and most liquid stocks, Mr Chew said. He said smaller stocks will be potentially under-appreciated by investors, and specialist investors can fill the gap.