Avanda eyes 15% returns with Discovery Fund targeting Singapore stocks

[SINGAPORE] Local fund manager Avanda Investment Management is targeting an absolute return of up to 15 per cent for its newly launched Avanda Singapore Discovery Fund over the next three to five years.

The fund, which comes under the Monetary Authority of Singapore’s S$5 billion Equity Market Development Programme (EQDP), began operations on Oct 1 and will be overseen by partner and head of equities Richard Chan alongside portfolio manager Sherman Lim.

Chan had previously led the Asia-Pacific equities team at GIC from 2008 to 2015 while Lim was an investment analyst at Newlands Investment Management before joining Avanda in 2022. Avanda is co-founded by former GIC chief investment officer and former presidential hopeful Ng Kok Song.

The Singapore Discovery Fund is available only to accredited and institutional investors. Avanda is one of three fund managers that have received funding under the EQDP so far. The other two managers are Fullerton Fund Management and JP Morgan Asset Management. Fullerton Fund Management launched its own fund for retail, accredited and institutional investors on Oct 6, while JP Morgan has yet to announce the launch of its fund.

Avanda’s fund is built around three core investment themes: Value-Up, Local Champions and Turnaround.

In an interview with The Business Times on Monday (Oct 13), Lim explained that Value-Up companies refer to those that are severely undervalued compared to their global peers or historical valuation. Turnaround companies are those whose share prices could re-rate significantly if their turnaround succeeds. Local Champions are companies that offer reasonable valuations and attractive returns over the longer term.

Lim said that companies under the Value-Up theme will constitute roughly half the portfolio as they provide “the biggest, most attractive opportunity” within the Singapore equity market.

Overall, the portfolio will consist of between 25 and 35 core holdings, with about half of the holdings being mid-caps in the range of S$500 million to S$5 billion in market capitalisation.

The remaining half will be mostly allocated to large cap names, with a lower allocation to small-cap counters. Avanda is unlikely to have more than 10 per cent of the fund in any single stock so as to control for risk, explained Lim.

Lim said the fund will be “very actively managed”. Stock selection will also be driven by their absolute returns rather than index weightings. Investments will be identified through Avanda’s “quality-focused, bottom-up” research process.

The fund targets an absolute return range of around 10 to 15 per cent over the next three to five years. Lim expressed confidence in that range, noting that the underlying stocks are able to deliver such returns at their current valuations.

While the trio of local banks, which are heavily weighted in the benchmark Straits Times Index, are not included in the fund for now, Lim did not rule out their inclusion in future.

He said: “If one day the Singapore banks offer us an attractive opportunity, or a more attractive opportunity than what we can find elsewhere, then we will include them.”

Investors turning to Singapore

Chan said that the award of the EQDP funds is “a great recognition” of Avanda’s mission to help Singaporean investors invest in the local market.

While he is confident that the EQDP will boost the Singapore equity market in the next two years, Singapore’s stock market can only be strengthened in the long term if there is a pool of companies that give investors safe and reasonable returns.

“And for that to happen, I think we need to see some of the local companies being recognised…(and) new IPOs have to complement the existing stable of companies.”

To that end, Avanda will consider being cornerstone investors in upcoming Singapore-listed initial public offerings (IPOs). Lim said that the fund will invest in new listings if they meet the fund’s investment objectives.

Since its Oct 1 launch, interest from both Singapore-based and regional investors in the Singapore Discovery Fund has been “really strong”, said Faith Toh, head of business development at Avanda. She declined to give specific numbers but expects “a few” large investors in the coming month.

Chan added that many Singapore-based investors are looking to “come back home”, given the discounted valuations in the local market and uncertainty in the US stock market.

Lim added that he will consider the fund a success a year from now if it is able to hit its returns target. But beyond investment performance, he is also hoping the fund will give Singapore-listed companies a boost.

Said Lim: “If I am able to really help some companies…in the form of optimising their balance sheet, in the form of increasing investor engagement and helping them close the valuation gap, I think that will be more satisfying than just the numbers.”