Q: The Pacific Rim is made up of large number of countries, cultures, and economies. What countries and economies do you cover in this fund? Why should investors consider this fund?

A: We look at all the countries that border the Pacific Ocean, from North and South America to Australia and Asian countries including Japan, China, and Korea. In all there are more than 30 countries.

We believe that in the next several decades the economies of the Pacific-Rim countries will grow faster than that of the United States. The risks of investing in these countries are high. In addition to the political risks, there are currency risks, corporate governance risks, stock market liquidity risks, and disclosure risks. We want fund investors to benefit from this economic growth, but we also want to limit the risks that we undertake. The Fund invests in companies, primarily American companies, which are active or deriving an increasing share of their earnings from the region. We want to invest in companies that adhere to SEC-style disclosure and companies that trade in the US markets. We want to invest in American or European companies that are active in Asia.


Q: Why do you prefer to invest in the American or European companies, when the fund is focused on Pacific Rim economies?

A: One of the ways we control risk is by investing in companies that trade in the US. We look at the ADRs from Asian and European companies. In the recent past we have not been excited about the prospects for Japanese and Korean companies; however, when the situation changes, we will be ready to buy into companies in these countries.


Q: Do you prefer any specific market capitalization or sectors in the region?

A: 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. Ultimately, we are interested in investing companies that are benefiting from the rising purchasing power in these economies. We like to invest in long trend themes that we believe and understand. We like trends such as growth geographies, globalization, and technology.


Q: Different fund managers seek different kinds of growth, what kind of growth are you seeking?

A: We look for growth in core earnings or revenue. We define core earnings growth as organic growth in revenue, excluding earnings related to acquisitions and currency translation. For example, we invest in Nokia for two reasons. First, Nokia is enjoying core revenue growth in Asia and is likely to continue to do so for the next several years. Second, the company has moved a significant portion of its manufacturing operation to Asia. We think both of these factors will contribute to the firm’s earnings.

We also have invested in WPP Group, one of the largest advertising agencies in the world with a consistent record of attracting new clients. We also own Intel. Currently, Intel derives 49% of its revenue from Asia and 25% from the US. The percentage of Asian revenue for the firm has doubled in the last five years. We are looking to invest in companies with similar revenue and earnings characteristics. For instance, we own Coca Cola and AIG. We also like financial services firms such as State Street Corporation.


Q: Your investment approach to the Pacific Rim market is unique. Why do you follow this approach?

A: Strict corporate governance and cronyism are two major impediments to investing in the region. Local companies have inadequate disclosure and excessive off-balance sheet financing that are hard to trace. If you invest in local companies, you are not sure when you will confront these problems. South Korean companies recently had to deal with these issues and, during the 1998 crisis, investors in Thai and Indonesian companies paid a heavy price. Recent corporate scandals in the US are giving investors in US stocks little comfort, but similar scandals in Asia are far more frequent.


Q: Currently do you think investing in Japan is attractive?

A: Since 1989, we have avoided Japan. During the last three months, we have been looking into the Japanese market but we are not ready to invest. At present Japan is going through fiscal reform that will be good for its long-term economic health. Few Japanese sectors are attractive to us currently. Japan is only now adopting a mutual fund business model, and we see that as an investment opportunity. Western-style retirement and financial planning is a new concept in Japan. The population in Japan is rapidly aging and, without an investment safety net, families have had to rely solely on corporate pension plans.