Civetta – Small Cap ASEAN Equity Fund

Within the broader arguments of passive versus active investment strategies, comes a more profound question – what does an investor do if there is no real passive and precious few active managers in the segment they are looking to invest?

Thus sets the background for the Civetta Small Cap ASEAN equity fund. In the international market there is regrettably few ways for an investor to buy in to this dynamic area of the world in a specific and targeted fashion.

There are some equity funds, HSBC, Aberdeen and JPMorgan being three, and the last of those representing the sadly missed Jardine Fleming ASEAN fund.

However if one needs to be one additional layer more specific, in this case Small Caps, then it is probably much a unique space – which is puzzling to say the least.

Perhaps we can put this down to survival of the fittest and the size of the relevant markets. Agreed that many of the ASEAN markets are small in their own right and only really Singapore has an international footprint, although Thailand, Indonesia, Malaysia, Philippines and most vividly, Vietnam have made great strides in breadth and depth of equity markets recently.

, Civetta – Small Cap ASEAN Equity Fund

Factor in the relatively poor returns and the picture becomes clearer. The MSCI ASEAN peaked at 1100pts almost exactly TWENTY FIVE years ago, and the Small Cap index of the same peaked in 2013, and both are still approximately 50% off their high points.  Talk about a buying in point! 

As we have seen, the few global fund houses covering the area has made money inflows difficult, despite the increasing significance of this incredible region.

After all the catalysts for growth are all there – dynamic workforce with incredible work ethic, young but educated populations, large transitions in motion from rural to urban living, a group of states which, together, make up highly diversified industries – from tourism, to finance, to manufacturing, to service oriented, to commodities – ASEAN has it all.

, Civetta – Small Cap ASEAN Equity Fund

So what is missing? Well, whilst the longer term growth story is compelling, should the greenback devalue further, then this region could take off with equity valuations poised to rebound strongly especially in conjunction with the pandemic restrictions lifting internally and across the globe.

One interesting comparison to leave ypu with, is the similarities between the late 80’s / 90’s and now. Back then Japan was the Asian bad boy – the ire of the United States was focused on the land of the rising sun. Now that ‘crown’ has been taken by China.

If we look at what happened, throughout the 80’s the US imposed tariffs, quotas and import bans on everything from Japanese steel to cars. As a result Japanese global export figures fell, due to these measures and as a result, Japan outsourced their manufacturing facilities to ASEAN and primarily to Thailand. Due to this, Thai exports rose significantly, FDI grew 700% between 1985 and 1990, and the Thai bourse rose 17x between 1981 and 1993 – the strongest period of growth in Thailands history?

, Civetta – Small Cap ASEAN Equity Fund
, Civetta – Small Cap ASEAN Equity Fund

Can this be repeated? Well, the situation isn’t exactly the same, but there are certainly similarities and given the relative value of the this area, it seems worth an allocation in anyone’s’ portfolio.