:: APS Asset Management :: APS Alpha Fund

FAQs

A. FIRM-SPECIFIC QUESTIONS

1. Who is APS?
APS is an asset management firm specializing in Asia Pacific equity markets. We are based in Singapore and have research offices in Shanghai and Tokyo. Established in 1995, we are registered as an Investment Advisor with the Monetary Authority of Singapore (MAS) and the U.S. Securities and Exchange Commission (SEC). To date, we have over US$3.0billion under management and our clients are mostly institutional investors such as government agencies funds, public and private pension fund sponsor, multi-managers’ managers and insurance companies.

2. What is the APS’s investment philosophy?
APS believes that Asian equity markets are inefficient in the short run and that stocks are often mispriced. We believe that over time, stock prices will eventually reflect their fair values. Also central to our investment philosophy is the belief that we can uncover these cheap stocks through rigorous, robust and independent bottom-up research. We analyze long-term structural and business trends and screen companies to identify potential investments. Company visits in factory or site inspection formed an integral part of our research work.

3. Who owns and runs APS?
APS is 100% employee owned. APS is run by Mr Wong Kok Hoi, Managing Director and Chief Investment Officer, and his team of 19 experienced investment professionals and support personnel.

4. Why should I trust APS?
APS manages money for numerous clients like pension funds and government agencies and has been trusted by them. Such clients are very discerning, careful and meticulous in deciding who should manage their money. APS was voted Best Asian Manager 2003 by Global Investor, UK. APS was ranked Number 1 in a Mercer Investment Consulting performance survey for Asia ex Japan equity portfolios over the 3-year and 5-year periods ended 31 March 2004.

5. What makes you so different from any other fund manager?
Unlike many fund managers, we do original, rigorous, bottom-up research. Our approach towards investments and research is thorough. We visit our investee companies including their factories and other operational sites to make sure we understand their business models. We verify what we hear by crosschecking with competitors, suppliers, and customers of the firms we research.

6. Why should I invest with a firm that has a relatively short track record?
10 years is not short. More importantly, our investment team is much more experienced than many teams in established firms. Otherwise, reputable institutional investors in Europe and the U.S. would not have entrusted their funds with APS.

7. Why should I invest with APS instead of other better-known firms?
We are well-known among institutional investors and investment consultants. Our clients include several government funds from Europe, Singapore and other countries. We have recently won the Global Investor’s Award – surpassing and beating other better-known firms. The Global Investor Award is conferred by a committee consisting of professional investment consultants around the world. These consultants advise large institutions on how to invest their money. Our performance has not been matched by our competitors.

8. You say you have won the Global Investor Award for performance. However, other firms have also won many awards for their performance. What makes you different from them?
The Global Investor Award was conferred by a committee of independent, international investment consultants from the U.S., Europe and Asia. This award gives recognition to the best fund management firm in each asset class. These investment consultants advise pension funds and other big institutions on how to invest their money. Hence, the award is regarded as the leading qualitative assessment of excellence in the asset management industry. APS was selected as the best manager for the Asia Pacific Equities category based on consistent outstanding performance, the clarity of investment process and philosophy, and the stability in personnel.

In comparison, the investment awards won by many other asset management firms are often not conferred by independent investment consultants. Instead, many of these awards are sponsored by the asset management community and do not carry the same independence and impartiality of assessment of the performance of the winning asset management firm.

B. FUND-RELATED QUESTIONS

1. What is the investment objective of the fund?
The fund’s aim is to provide medium to long-term capital appreciation by investing in the stocks of companies listed in Far East ex-Japan markets.

2. Which countries will APS invest in for the APS Alpha Fund?
The APS Alpha Fund can invest in China, Hong Kong, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand depending upon the market conditions and opportunities in each market.

3. What is so special about this unit trust?
Unlike any other unit trusts, the APS Alpha Fund does not charge any management and administrative fees. APS absorbs all expenses which are normally charged to investors, namely, management fee, trustee fee, administration fee, accounting and valuation fee, custodian and depository fees, registrar fee, legal and professional fees, audit fee, printing and distribution costs, and other setup costs. These fees can add up to 2.5% or more, whether the fund makes money for you or not.

4. Is there a bid to offer price or bid to bid price for the Fund?
Unlike other unit trusts, there is no bid or offer price for the APS Alpha fund. There is a single dealing price calculated daily by the administrator of the fund.

5. What has been the performance of the Far East ex-Japan fund for your institutional clients?
Since inception, we have consistently outperformed the MSCI AC Far East ex-Japan benchmark. More importantly, since inception in September 1995, we have achieved 158.8% returns in total for our Far East ex-Japan portfolios as at 30 June 2004.

6. Why is the unit trust investing only in Far East ex Japan and does not include Australia and Japan?
This is because we would like to start with our strongest product.

7. Why should you take a free ride on the markets when I can just invest in a tracker?
A tracker fund invests in both good and lousy stocks. Your stocks will have average returns. APS invests in the best-managed and profitable companies.

8. How can I monitor the performance of my holdings?
You will receive a quarterly statement to show you the value of your holdings and semi-annual / annual report with the details of the portfolio.

9. How long is the fund expected to run?
For as long as the Fund is in demand.

10. Would I be able to speak to the investment manager concerning queries on the fund?
Yes.

11. How do I sell my holdings?
To sell your holdings, simply contact your Financial Advisor.

12. Are dividends and income distributed?
No. Dividends and income from the stock holdings of the unit trust will not be distributed to investors. Instead, these dividends and income will be reinvested and included in the computation of the value of the unit trust.

13. Do I need to pay tax for the gain in value of my holdings before I sell them?
No. So far, the Singapore government has not imposed any capital gains tax whether realized or unrealized.

C. FEE-RELATED QUESTIONS

1. Why is the fee structure so complicated?
It is actually very simple – we get paid only when we perform. We are unlike other funds that charge management fees and all expenses every year, regardless of performance.

2. Why is your unit trust charging performance fee when existing unit trusts in the U.S. are prohibited from such arrangements?
To our knowledge, unit trusts in the US are not prohibited from charging performance fees. Whilst it is true that most US unit trusts still charge fixed fees, there are increasingly more that charge performance fees. Some of the savviest US endowment funds and foundations are moving away from fixed fees in favour of performance fees. As the market recognizes the merits of such a structure, this trend towards performance fees will accelerate. It is also a well-known fact that all hedge funds in the US charge, on average, 1.5% fixed and 20% performance fees on the top of all other expenses charged to the fund.

3. If you make 10%, you take 2.5% away… Isn’t this a very high fee for performance?
Our unit trust is a premium product. Over the years, we have generated good and consistent returns thus we charge a premium for the performance. Remember, the investor still keeps 75% of the profits! Furthermore we incur a lot of costs but we do not charge any of these costs to you. We will bear the start-up costs and the annual expenses of the fund such as trustee, administration and valuation, custodian, registration, accounting, and audit fees, etc. We also share the performance fees with the distributors. In the case of the conventional fixed fee-paying funds, all the above expenses are charged to the funds each year. Even if the fund loses money, the fund manager still gets paid, on average, 1.5% p.a. in management fees year after year. Unlike other managers who charge annual fees for losing money, we do not believe in making you pay when we do not perform.

Moreover, if our returns are positive but below the hurdle rate of 6% p.a., investors get a free ride. In that situation, we will not only be working for free but also footing all the expenses stated above.

4. Why can’t the performance and hurdle rate be carried forward?
We are incentivized to beat the hurdle rate year after year and it is in both our interest and in yours that we beat the hurdle. You only pay when we perform for that particular year and in a negative year, we share the losses. Furthermore, in such a year, the manager continues to bear all the expenses.

5. Why is the hurdle rate 6% p.a. and not higher?
We have set the hurdle rate at 6% p.a. after considering the returns that investors can earn from fixed deposits (1%), bonds (1.5% - 2%), and the historical returns of the equities markets.

6. When do I pay performance fees?
You pay fees at the end of every calendar year or when you redeem your investments, whichever is the earlier. The fees are calculated by the Administrator of the fund and reflected in the NAV.

At the beginning of the following calendar year, we will once again begin to compare the performance of the fund against the 6% p.a. hurdle rate for the new calendar year. This ensures that we strive to beat the 6% p.a. hurdle every year.

If the investor exits the fund anytime before the last day of the calendar year, the investor would also have to pay the fee, if his/her annualised gains exceed 6%. The fee payable will be calculated over the relevant period.

When you sell part of the units you hold in the fund, the FIFO (First In-First Out) rule applies. In order to calculate the fee payable, if any, it is assumed that you will sell the units that you bought first.

If you want to know, at any point in time, what your units are worth and whether a performance fee is payable, please contact your financial advisor.

7. Will you change the fee structure in the future and suddenly impose a management fee?
No, we are committed to beating the 6% p.a. hurdle rate and earning our fees through good performance.

D. INVESTMENT-RELATED QUESTIONS

1. Can I use my CPF savings to invest?
Yes, you can use the savings in your CPF ordinary account for the investments.

2. Your firm’s past performance appears to be risky. Why?
Our firm’s performance is not as risky as it appears. As at 30 June 2004, we have achieved 158.8% returns in total for our Far East ex-Japan portfolios without taking much risk since inception in September 1995 We have been through ups and downs and through tough economic environments (such as the Asian financial crisis, technology bubble, corporate scandals) and we were still able to offer fantastic returns. We believe in producing high returns with minimal level of risk possible.

3. Can you continue to perform in the future?
Yes, we will continue to work towards generating outstanding returns for our investors with the same investment approach. Our successful tried and tested investment process will not change.

4. Why do you invest in equities and not bonds?
Our expertise is in finding undervalued Asian stocks. The yields from cash and bonds are currently low. We believe investors can gain more by investing in a diversified portfolio of undervalued Asian stocks.

5. Why should I invest in the APS Alpha Fund instead of a capital guaranteed product?
The returns for capital guaranteed funds are often barely positive. In addition, the fees of capital guaranteed funds are high and they usually have a long lock-in period. Our track record is excellent and we are incentivized to achieve positive returns for this fund.

6. Why do you invest only in Asia?
We believe that Asian markets are basically inefficient and that there are many undervalued companies. Our expertise lies in Asia – we are an Asia-Pacific equities specialist and we do what we believe we do best.

7. Why do you invest only in lesser-known and small cap companies?
We do not only invest in lesser-known and small cap companies. Our portfolio is well-balanced, well diversified in various companies across Asia.

8. Do you avoid investments in any particular industry or sector?
No. Investment in a specific company or industry is guided by our sound investment philosophy. We will only invest in a company if it meets the criteria set forth in our rigorous and robust fundamental research process.

9. Will you close the fund after missing the 6% p.a. target for a few years?
As a long-term investor, as long as there is demand, we will continue to manage the fund.

10. Will you take unnecessary risk to beat the 6% p.a. hurdle?
No. We have been able to offer excellent returns without taking unnecessary risk. We will not take risky bets to beat the hurdle as we have invested S$10 million of our own money in the unit trust. Our interests are aligned with yours.

Disclaimer

The above is strictly for information purposes only and should not be construed as an offer or solicitation to deal in the securities/investments mentioned herein. Unless stated otherwise, any opinions expressed are based on our internal forecasts and should not be relied upon as indicating any guarantee of return from an investment in our products. Past performance of the Fund and the Manager and any forecasts made are not necessarily indicative of future or likely performance of the Fund or the Manager. Investors may wish to seek advice from a financial advisor before making a commitment to purchase the Fund. In the event that the investor chooses not to seek advice from a financial advisor, he should consider whether the Fund in question is suitable for him. We have made every effort to ensure that the information provided herein is accurate. Please note, however, that some data has been derived from sources that we believe to be reliable but its correctness is not guaranteed. Investments in unit trusts are not obligations of, deposits in, guaranteed or insured by APS Asset Management Pte Ltd (the "Manager") and are subject to investment risks, including the possible loss of principal amount invested. Investors should refer to the prospectus for a full disclosure of all risk factors. All applications for units in the Fund must be made on the application form accompanying the prospectus. Investors may obtain a copy of the prospectus from the Manager or any of its appointed distributors. Investors should read the prospectus before deciding to purchase units in the Fund. The value of the units and the income derived from them may fall as well as rise.