Asia is quickly becoming a "sweet spot" for U.S. investors eager to boost portfolio returns at a time the bull market in U.S. stocks is expected to lose some steam, a top hedge fund investor said.
Hedge fund managers in Singapore and Hong Kong can pick from a huge number of companies that are often followed less closely by analysts than are U.S. companies, leaving plenty of room to make money, Michael Weinberg, chief investment strategist at Protege Partners said at the 2015 Reuters Wealth Management Summit.
"There are greater opportunities with less cash chasing them" in Asia, Weinberg added, noting that Asia boasts twice as many companies with a market capitalization of $1 billion or more than the United States or Europe do.
Protege invests $2 billion with smaller hedge funds around the world and has been meeting with many Asia-based managers recently.
In investing terms, managers can hunt for ideas in 14 countries and 6 large economies, and because many companies are conglomerates, they may be ripe for consolidation, which many investors expect could yield even bigger payoffs.
Hedge fund managers now also have a chance to bet against, or short, many Asian stocks, something that provides even bigger opportunities, especially now that economic growth in China is slowing from its once fevered pace although its stock markets have continued to soar over the past year.
For example, because off-shore investors are now permitted to short Chinese A shares, there is room for a classical arbitrage opportunity between a company's A shares listed on the mainland and its Hong Kong-listed H shares, Weinberg said.
"These are right in the sweet spot of what (our clients) are looking for," Weinberg said about what his wealthy clients, including family offices and endowments, are looking for against a backdrop of tougher investment conditions.
Protege's clients also have a rich selection of fresh hedge fund names in Asia as traders spin off from established firms to launch their own business.
For example, Tony Hsu split from Dalton Investments to launch a firm to bet on shares of entrepreneur-led Asian firms and against state-run companies.
In general, Weinberg noted that betting on Asian hedge funds has been profitable for many years even as many U.S.-based funds have been criticized for more lackluster returns.
In the last 15 years, the Eurekahedge Asian Index grew 3.6 times while the broader MSCI Asia Index grew only 1.4 times.
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(Additional reporting by Nishant Kumar in London; Editing by Ken Wills)