Anthony Cragg, manager of the Strong Asia Pacific Fund, is betting on Asian consumers to spark economic growth and extend his top performance for a fourth year.
Cragg's fund, whose annual return of 13 percent during the past three years ranks it ahead of 24 of 26 Asian stock mutual funds tracked by Bloomberg, owns shares of companies including Nomura Holdings Inc., Japan's largest brokerage; Singapore Press Holdings Inc., the city-state's biggest newspaper publisher; and Pantaloon Retail India Ltd., a fashion retail chain.
"Too many people approach Asia as it correlates to what happens in the West," said Cragg, 48, who has invested in Asian equities since 1980 and now works in Evergreen, Colo. "I am a huge believer in Asia."
Cragg is limiting investments in makers of computer equipment and semiconductors, whose fortunes are tied to companies such as Intel Corp., because rising interest rates in the United States may curb corporate demand for new technology. His fund has 4.7 percent of its $110 million in computer-related stocks, compared with the 15 percent weighting of the Morgan Stanley Capital International Asia-Pacific Index.
Cragg's fund rose during the past three years at an annual pace that more than tripled its benchmark. The MSCI Asia-Pacific Index gained 3.5 percent in the period. This year, the Strong Asia fund added 2.8 percent, including reinvested dividends, lagging behind the benchmark's 6.1 percent return.
London-born Cragg moved to Asia in 1978 after getting a master's degree in English literature from Oxford University. He taught English to business students at Japan's Nagoya University of Commerce before switching to money management two years later. Cragg lived in Asia until 1986; his first son was born in Tokyo.
He worked at Gartmore Investment Management and Dillon Read International Asset Management in London, where he oversaw Asian investments. Cragg joined Strong Capital Management Inc. in April 1993 and started the Strong Asia fund eight months later.
Strong Capital agreed in May to be bought by Wells Fargo & Co. for an undisclosed amount after settling allegations of engaging in improper trading. Cragg said he and his fund will join Wells Fargo.
"Asia isn't something you can dip into from time to time, trying to make a quick killing," he said. "Every country is at a different stage of a cycle. You have to know when to accelerate and when to brake."
Cragg boosted his Australia holdings to 13 percent last year, from 7.7 percent at the end of 2002. He snapped up miners, including Jubilee Mines NL, amid optimism that China's improving economy would increase demand for raw materials. Cragg also bought shippers in Taiwan, Hong Kong, Singapore and Malaysia.
As Beijing introduced measures during the second half of last year to slow industrial production, Cragg began selling "Chinese auxiliary companies." The fund has cut its holdings in Australia to 3 percent of assets and it no longer holds any shipping stocks.
Cragg has since moved money to Japan, where signs of increased consumer spending convinced him of the economy's recovery. He bought financial companies Nomura Holdings Inc., Sumitomo Realty & Development Co. and Jafco Co., boosting Japan to 30 percent of the fund as of June 2004, from 10 percent last year.
He also raised Malaysia to 7 percent of the fund's holdings, from 3 percent in 2003. In anticipation that Prime Minister Abdullah Ahmad Badawi's efforts to balance the budget and fight corruption would lure overseas investors, Cragg bought shares including financial company OSK Holdings.
At the same time, concern about higher U.S. interest rates prompted Cragg to seek dividend income by holding stocks such as Singapore Press Holdings. He also doubled his fund's cash position to 10 percent in June, from an average 5 percent last year.
Singapore Press, which publishes 15 of the city's 17 newspapers, offers both a guaranteed payout and a chance to bet on an economic rebound, Cragg said. Singapore's government has forecast the economy will expand as much as 7.5 percent this year, up from 1.1 percent in 2003.
"The chunk of paper that's devoted to classified ads in Singapore is growing rapidly," Cragg said. "It's a classic play on the recovery."
The stock has a dividend yield of 4 percent, compared with the Straits Times index's 3.5 percent yield.
Strong Asia Pacific Fund owns about 60 stocks and holds them on average for 12 months. It invests in smaller companies with faster growth prospects that have yet to become household names, a task that Cragg likens to planting seedlings.
Pantaloon Retail India, with a market value of $134 million, plans to open as many as 34 new stores by 2005 to almost double its number of outlets.
The attention to small companies and willingness to invest across the region sets the Strong Asia fund apart, said Bill Rocco, an industry analyst at Morningstar Inc. in Chicago. The fund "is an oddball in the group," he said.
Sometimes it takes time to see the benefits. Cragg bought Pantaloon's stock at 340 rupees ($7.40) in February. The shares, which make up 1.5 percent of the fund, closed at 321.1 rupees Friday on the Bombay Stock Exchange.
"Eventually the spotlight will come on them," Cragg said.