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David Webb founded Wellam Investment Ltd. in March 2000,
the firm is based in Hong Kong. Prior to establishing Wellam,
Webb was MD and head of Asian equities at Chase Asset Management
in Hong Kong since 1992. David currently runs the Hidaro Fund,
a Japan equity long/short fund employing both a relative value
and directional strategies. David is supported by Hitomi Sugino
who previously worked with David at Chase and has been in
the Japanese securities market since 1982. The Hidaro Fund
was launched in February 2001, prior to which David and Hitomi
were running a segregated account with the same strategy.
The Hidaro Fund was -1.64% for July 2002 and is +2.70% YTD
at the end of July.
Interview with David Webb
- How much money is in the Fund and how is fund-raising
proceeding? What is the maximum size of the Fund?
We are currently running a total of US $101 million,
$67million in the Hidaro Japan Fund and $34 million in
a segregated account run par passu to the hedge fund.
Right now, $200 million is the maximum that they will
run in the strategy. Though we primarily invest in large
capitalisation names and could handle more than $200 million,
more than that amount would inhibit our ability to be
flexible.
- What is the status for the organisation?
The Firm [Wellam Investment Ltd.] currently has two investment
professionals, myself and Hitomi Sugino, and an office
manager and one settlements officer. The plan is for us
to add one more analyst to be based in Hong Kong and another
operations manager. We are also moving to a larger office
in Central from Causeway Bay [both in Hong Kong].
-
What has made and lost you money in Japan this year?
So far this year, the investments have worked well. During
the first half of the year we benefited a lot from stocks
that we thought represented good value but were sold off
in November and December last year. What we liked about
those names was that management was trying to restructure
and the stocks were undervalued and oversold, pricing
in a financial system collapse that we believed wasn't
going to happen.
For the investments that didn't work for us we need to
focus on June and July. In June we had the right view
that the yen would strengthen and exporters would fall,
but exporters didn't come down much until July. In July
we were down 1.64%, most of that came towards the end
of the month. There wasn't any one thing that caused the
drawdown; there were a couple of bad days where our longs
and shorts didn't perform well in the pair-trading strategy
- What themes and sectors are you currently finding interesting
in Japan? Outlook for the next 6 months?
We do a lot of company visits, around 300 per year and
there is not any single sector that we are particularly
positive or negative about. What we are finding is a lot
of interesting stocks for both the long and short portfolios
in a whole variety of industries; this corresponds with
our investment process where we go and see companies and
form our views from that instead of from general sector
themes.
However, on a strategic point of view: we think the exporting
and technology sectors are interesting. With exporters
you have to take two things into account: a) what happens
to the currency and b) what happens to the U.S. economy.
If you were to become bullish on the US economy and believe
the yen will weaken then you have to expect the export
sector will do well since it came down a lot from its
May/June highs. The general story is that technology orders
and the general business cycle bottomed in November of
last year; then after Chinese New Year there was a significant
pick-up in business and recently there has been more of
a slowdown and the visibility has become muddled. Year
on Year numbers for June have improved but margin erosion
has picked up. The September results season is going to
be very interesting, one will have to take into account
their holdings' currency forecasts and look at actual
first half performance numbers relative to expectations.
I think there will be volatility in the next couple of
weeks; there will be both positive and negative surprises.
The next couple of months will be quite testing.
- 10% of the Fund can be allocated outside of Japan;
are you currently invested in other countries?
We have some investments in Australia, but they are quite
small both on the long and short side (David Webb used
to run an Australian fund). The Asia ex Japan positions
have always made up a very small portion of the Fund.
Investments outside of Japan always complement our stock
picks in Japan.
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You run a balanced portfolio between Jones model
equity l/s and relative value; which style are you focusing
on today?
The pair-trading strategy has historically been around
70% of the portfolio's gross exposure. Today, it is at
a lower level, around 50% of the gross exposure; that
is a factor of our low gross (60%) instead of a shift
to a straight long/short strategy.
- It seems that there are differences of opinion on
whether corporate restructuring is really progressing in
Japan. What are your thoughts?
I believe that the current situation, which has been
the same for the past 12 years, cannot continue. I am
very optimistic that changes are coming, but not optimistic
that it is good for the country since these changes will
likely result in an increase in unemployment, decline
in tax revenues and strains on the social security system.
If you look at the overall pace of change, it is still
slow by western standards. However, if you look at some
specific companies, the change is quite drastic. The more
the market gets a hold on these stories, the more they
will reward the companies that are legitimately restructuring.
The problem to date is that investors have been bitten
once or twice by Japanese companies which said they were
restructuring but weren't serious about it. Those that
have seriously changed their business models were rewarded.
So going forward, some companies will continue to make
significant changes in their business models, like drastically
cutting costs by pulling their manufacturing out of Japan
and into China. Other companies won't be able to achieve
that and they will likely disappear. This is a good environment
for a pair-trading and stock picking strategy, since there
will be clear winners and losers over the next few years.
Contact Details
Wellam Investment Ltd
Hong Kong
+852 2168 9414
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