Apollo Investment Management

Resilience in adversity
Apollo Asia Fund: the manager's report for 3Q2001

The NAV of the Apollo Asia Fund rose 1.8% in the three months to September, a period in which the monitored MSCI Asia-ex-Japan index fell 21%. (See performance charts.) NAV at quarter-end was US$114.32.

While the positive absolute return is readily justified by the resilience, cash-generating characteristics, strong balance sheets, good management, and attractive valuations of our holdings, the relative return may have been boosted by a flight to quality on the part of other investors. (Sometimes weak markets cause liquidity in smaller-cap stocks to dry up and the quotes to be unrepresentative, but that has not been the case here; many of our companies have been trading in higher-than-average volume over the last month.)

Top ten holdings
  as at 30 Sept 2001
Aeon Credit (HK)
Bangkok Insurance
Bumi Armada

Cafe de Coral

Compass East
Jusco HK
Ocean Glass
Thai Stanley
Wiik & Hoeglund
Geographical breakdown
  as at 30 Sept 2001
% of securities
Hong Kong-listed equities
Indonesian equities
Malaysian equities
Singapore-listed equities
Thai equities
No new names were added to the portfolio during the quarter, but four have gone: the still-not-expensive Singapore Bus and MBK Properties to make way for shares with greater long-run growth potential, Wong's Circuits on acceptance of a cash bid, and Land & General bonds as described last month. We added to many of our existing holdings, increasing portfolio concentration somewhat. The top ten holdings are shown to the left. Names outside the top ten are China Hongkong Photo, Glorious Sun, and Kingboard Copper Foil (1-3% each), and BAT Indonesia, Golden Land, and United Tractors (<1%).

Due to market volatility, I wrote more than usual during September on the 'what's new' page. Rather than bore you with repetition, I will keep this short and refer to the recent comments likely to be of particular interest: portfolio valuation (25 Sept) and portfolio exposure to weak sectors and markets (18 Sept). Valuation is the key, and is as attractive as it has ever been. While uncertainties abound, and systemic risk emanating from the US is a major concern, the same could have been said since inception, and our portfolio has experienced significant growth in 'intrinsic value' during that period. Prices will not always be this steady in adversity; you need only look back at the volatility of the Fund's NAV to see that - but fluctuations in sentiment are an opportunity. We own stakes in strong businesses, and still expect good long-term growth in intrinsic value. Current valuations suggest that NAV over the long run should at least keep pace.

Claire Barnes, 10 October 2001

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