Korean Hedge Fund Avoids Share Drop by Ignoring Macro Noise

(Bloomberg) -- Kim Doo-yong is a fund manager who doesn’t care much about the trade war or turmoil in emerging markets, or even the slump in Korean shares this year. He just focuses on picking unloved stocks -- and his hedge fund is making double-digit returns for a second year.

The chief executive officer of Must Asset Management, a $400 million investment firm in Seoul, is emerging as a top performing fund manager in the country with a long-only equity strategy that purposely avoids high-profile stocks and sectors and eschews global economic analysis.

His four funds have returned about 22 percent on average through the end of August, amid a rout in emerging markets that pushed the benchmark Kospi index down 7.1 percent this year.

“I don’t have any view on macroeconomic issues at all, I don’t spend my energy on this subject,” he said in an Aug. 28 interview. “Pessimism in markets is giving an opportunity to us, thanks to investors who are lazy in making the effort to do research.”

At an office located in Dogok-dong in Gangnam District, far from the country’s financial district of Yeouido, Kim said his team doesn’t rely on analyst reports and prefers to do their own studies on companies. The firm currently invests in about 50 stocks chosen on valuation and after in-depth research to obtain “overwhelmingly” better knowledge on companies than other investors, he said.

No Samsung

He has never bought Samsung Electronics Co., South Korea’s biggest stock and the world’s largest semiconductor maker, as he thinks he may not be able to get a knowledge edge for such a well-known stock. It’s a similar picture for Korea’s biotechnology industry, which the government is trying to promote as a next-generation market, and a sector he also shuns.

“We are doing research on biotech companies in Korea, but we’ve never invested,” he said. “In order to overcome the high valuations, we need a significant insight, but we haven’t reached that level.”

The firm does hold more than a 5 percent stake in six Korean companies, including Taeyoung Engineering & Construction Co. and Kyeryong Construction Industrial Co., according to data compiled by Bloomberg based on filings.

Greatest Hits

The two Korean builders have both rallied on expectations of business opportunities in North Korea after an easing of geopolitical tensions there this year, with Taeyoung up 26 percent and Kyeryong climbing 42 percent. Must has held both companies for more than three years though took some profits from the positions this year, according to Kim.

One of his recent bets in overseas markets is Funko Inc., a U.S. design company that has risen nearly four times this year, Kim said. The firm is currently looking into emerging market exporters with competitive positions amid the weakness in developing nation currencies, he said.

Kim started the firm as an investment advisory company in 2009 and got approval from regulators to register as a hedge fund in September 2016. More than half of the firm’s money comes from corporate clients and the rest from retail investors, he said. Kim and his nine fund managers usually hold about 10 to 45 percent of the firm’s assets under management in cash to buy stocks beaten down by macroeconomic issues.

In 2017, his two main funds returned about 40 percent each, according to its performance reports. A Eurekahedge Pte index tracking globally mandated long-only absolute return funds rose about 20 percent that year, and is down over 3 percent so far in 2018.

“They are known as a long-biased asset management firm, very good at picking good stocks,” said Oh Gwang-young, an analyst at Shinyoung Securities who tracks equity funds in the country. “They have been known for keeping their investment strategy for a long time.”

©2018 Bloomberg L.P.