American in the Pacific
Pioneer Papp America-Pacific Rim Fund
L. Roy Papp and Rosellen Papp
Author: Manish Shah
Last Update: , :
|Over the last 30 years, investors have seen one Asian economy after another take off. First Japan, then South Korea and most recently, China. American and European companies are increasingly finding growth opportunities in the Asia-Pacific region of the world—and are opening a whole new way for investors to gain exposure to these economies through investment in multi-national companies.
||Pioneer Papp America-Pacific Rim Fund|
There is a general perception that the Asian consumer does not buy leading edge technology and products. We disagree with that argument. For example, Intel tells us that the ramp up of the Pentium IV chip was quicker in China then in the USA and the average selling price for chip in China is as high as in the USA. The technology consumer has the same demand profile as in the USA. We are looking at what the consumer is demanding and buying.
Q: How do you research the markets and companies you invest in?
A: Since we invest in the region through American companies, we direct our research efforts to companies in America and Europe. We read the public filings, and research and screen companies on quantitative measures such as growth in revenue and earnings in the region. We are looking for critical information, such as the company’s business in Asia, market share in various industries, and Asian share of the company’s earnings. We talk to the management and visit their offices. We do not visit countries in the region, but we do talk to company managements frequently.
Q: Do you track any indexes for your holdings or do you weight your holdings on the basis of the GDP in the region? How do you build and monitor your portfolio?
A: Our portfolio is built from the bottom up. We are not seeking to optimize or reflect holdings in our portfolio on the basis of index or GDP. In our fund, we have exposure to more than 30 countries and several currencies however, we do not engage in currency trading since the companies we invest in take that responsibility. The current weakness in dollar is temporary and we believe that in the near future this will be corrected.
We build our portfolio one stock at a time. Currently, we have 26 stocks in the portfolio and, on average, we hold 25-30 stocks. Fund holdings are concentrated in relatively few stocks and we limit the turnover ratio in the fund to below 25%.
We sell stocks for several reasons, such as, if there is a fundamental shift in the marketplace or the industry, if we believe we have made a mistake, if the stocks trade at a valuation higher than 50% more than it is worth, or for diversification reasons.
Q: Do you look for companies that benefit from trade within the region?
A: We are very interested in companies that benefit from intra-region trade. Currently we hold Expeditors International. The company provides global logistics services, distribution management, insurance procurement and freight management services. The company continues to benefit from the rising intra-region trade level and trans-Pacific trades. For small and medium sized manufacturers this kind of service is vital in their ability to reach global marketplace.
Q: How has the region changed since the 1998 Asian crisis?
A: Several American companies used the meltdown to expand their presence in Thailand, South Korea and Indonesia; for example, GE took advantage of the circumstances and managed to extend its market share in the Philippines and Thailand. GE had access to the capital to make acquisitions at a deep discount. Corporate governance has also improved since the last crisis, but there is still a lot of room for improvement. Intra-region investment and trade has increased substantially in the last five years.
Q: Like the European common market, do you think there will be an Asian common market?
A: There is a good chance that the region will gravitate towards a common or regional market led by China and Japan.
Q: You have recently been acquired by Pioneer Investments, how will it help in the future?
A: As Pioneer Papp America-Pacific Rim Fund, we will be able to leverage the distribution power of Pioneer Investments. We believe that the firm’s significant marketing prowess can allow us to reach critical mass, which will benefit the fund’s shareholders by lowering shared expenses due to the economies of scale. We’re very excited by all that Pioneer has to offer, and we look forward to working with them to increase the visibility of our fund and grow its assets.
Pullquote: We prefer to invest in large-cap stocks. We are seeking earnings growth in the region but we are also seeking value in the stock price. Traditionally, we have not invested in the banking sector but we are interested in the financial sector of the region. We are also interested in the consumer sectors that are driven by the local consumers.
L. Roy Papp: Founder, Partner, Portfolio Manager
L. Roy Papp & Associates, LLP
L. Roy Papp, the founder and a partner of the firm, holds an A.B. degree in Economics from Brown University and an M.B.A. degree in Finance and Banking from the Wharton School, University of Pennsylvania. He joined the investment counseling firm of Stein Roe & Farnham, Chicago, Illinois, in 1955. In his 20 years with that firm, he rose to be a senior partner and a member of its Investment Policy Committee.
In 1969, he was appointed to the Board of Directors of the Federal National Mortgage Association (FNMA). In 1975 he accepted a presidential appointment as the United States Director and Ambassador to the Asian Development Bank. Confirmed by the U.S. Senate, he served in Manila, Philippine Islands, for two years.
Returning to the United States in 1977, he established an investment counseling practice in Phoenix, Arizona and served on the board of four New York Stock Exchange companies.
He is Past-President of the Phoenix Art Museum and a trustee of the American Graduate School of International Management. He also serves as a member of the Board of Governors of the National Hospice Foundation. He is an honorary trustee of the Hadley School for the Blind, Winnetka, Illinois.
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