City National Rochdale: Bullish on Asia
March 21, 2015
Five years ago, Anindya Chatterjee’s boss asked him to choose an emerging-market fund to add to the offerings available to their clients at City National Rochdale. Chatterjee, who was born in the Indian state of West Bengal and has an M.A. in economics and finance from Tulane University, took his task seriously, making a number of trips to Asia with various candidates. After a year of deliberation, he made his decision: Chatterjee would start a fund that he would manage himself for the Los Angeles–based bank’s wealth management group.
With the benefit of hindsight, it seems like a smart decision. A 16-year veteran of Asian equities research at Jefferies, Bear Stearns, and Indian brokerage India Infoline, Chatterjee has posted strong numbers since taking the reins in December 2011. City National Rochdale Emerging Markets fund (ticker: RIMIX) has gained 17.08% annualized from inception in December of 2011, beating 96% of its peers, according to Lipper. Starting with just $4.8 million, the fund today oversees $698.5 million in emerging-market assets. All told, the bank’s wealth-management arm runs $9.7 billion in mutual funds for a clientele that includes some of Hollywood’s wealthiest stars and filmmakers. In January, Morningstar gave the fund its highest, five-star rating. Although, the fund has a pricey expense ratio of 1.61%, it doesn’t require a minimum investment.
A bottom-up stockpicker, Chatterjee focuses solely on Asia’s emerging markets, where per capita annual income ranges from $1,600 in India to $11,000 in Malaysia, over a total population of 4.43 billion people. Working with four analysts in New York and Hong Kong, he visits Asian companies that sell everything from hamburgers to car parts to smartphone chips. The fund has about 27% of its assets in consumer-discretionary stocks, 24% in financial names, and 14% in industrials—all beneficiaries of growing consumer spending, particularly among young Asians who account for nearly three-quarters of the world’s youth.
“Emerging Asia is still in that sweet spot where, for the next several years, the consumer space and domestic-demand space will see nonlinear growth,” says the Chatterjee, 45. “Many Asians are only just starting to make discretionary purchases for the first time in their lives, while people in Latin America and emerging markets in Eastern Europe have already been through all that, and Africa isn’t there yet.”
CHATTERJEE EXPECTS MANY of the roughly 70 stocks in his portfolio to get a boost from the recent weakening of Asian currencies against the U.S. dollar and the collapse in global oil prices. While the companies’ exports become more competitive in dollar terms, their costs for imported petroleum products fall.
That dynamic led him to buy shares of Indonesian taxi company Blue Bird(BIRD.Indonesia), Malaysian cellphone chip maker Inari Amertron (INRI.Malaysia), and Security Bank (SECB.Philippines) of the Philippines—all of which are up since Jan. 1.
“Consumers are going to see more disposable income now that the oil price adjustment has already happened on the streets from Indonesia to India to China,” he says.
Chatterjee likes mid-cap stocks with annual revenues of less than $2.5 billion that he believes Wall Street analysts overlook, and that are therefore undervalued. Sometimes they’re cheap because they have troubles, but Chatterjee will buy them if he thinks the issues are temporary. But he won’t invest in a company unless he expects it to deliver at least 15% to 17% average annual growth in earnings per share for several years.
Using a common value measure, he likes stocks that have a price/earnings growth ratio of less than 1.0—like Indian car-parts maker Amtek Auto (AMTK.India), which has a PEG ratio of just 0.61.
Some of City National Rochdale’s most recent investments are currency plays. Costs at Malaysian cellphone chip maker Inari Amertron are mostly for research and development and local salaries. They are denominated in the Malaysian ringgit, which has depreciated by 12% against the U.S. dollar in the past six months.
Inari gets dollars for its sales. Its biggest customer is Apple (APPL), which uses Inari’s radio-frequency device chips for wireless exchanges of photos and files among iPhone users.
New Delhi’s Amtek Auto is up about 65%, to 148 rupees ($2.37), since February of last year, but Chatterjee thinks it has further to go. Amtek trades at only four times earnings because it borrowed heavily to finance acquisitions, and investors are valuing it as if it’s on the verge of bankruptcy, he explains. But after listening carefully to management’s plan to consolidate those acquisitions, he concluded that the stock should trade on a par with Indian auto-parts rival Motherson Sumi Systems (MSS.India), at 56 times earnings.
ASIA’S STOCK MARKETS are liquid enough for him to buy enough shares to scale the fund up as high as $3 billion in assets, says Chatterjee. That could happen under City National’s new owner, Royal Bank of Canada. Russell Goldsmith, City National’s chairman and CEO, will remain in charge of its $9.7 billion mutual fund platform, including Chatterjee’s fund, and will also take over RBC’s $260 billion wealth-management business in the U.S.
“This is not beginner’s luck,” he says. But then he knew that when he picked his portfolio manager.
One year performance as of 12/31/14: 9.32%
Since Inception Performance as of 12/31/14: 16.26%
Fund Gross Expense Ratio: 1.64%
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