MORE ON CITIGROUP ASSET MANAGEMENT'S UNIQUE ASIAN FUND

We spoke with Tathagata Guha Roy, Senior Portfolio Manager, at Citigroup Asset Management, to find out more about the fund manager's views on Asia and about the investment strategy of the recently launched, Smith Barney Select Asian Opportunities Portfolio. This is a close-end fund that will be equally invested in a fixed basket of about 35 stocks (i.e. 2.85 per cent per stock)*.

The fund will be priced at S$1 per unit and the minimum subscription is $5,000. Front-end fee is up to 2.5 per cent, depending on the amount purchased. Management fee is only 1 per cent, compared with 1.25 per cent to 2.25 per cent for many other equity unit trusts. The fund has a life span of about one year, during which time, a 1 per cent fee will be imposed for early redemptions. There will be an opportunity to rollover prior to the maturity.

Purchases can be funded with cash or SRS. Cash purchases must be made by August 29 while SRS purchases must be made by August 22.

Vasu: Will uncertainties in the US dent Asia's economic recovery?

Roy: The US is the largest economy in the world and it will inevitably have an impact on Asia. But there are already signs of de-coupling. Just look at how Asian bourses have outperformed US markets over the last six months. The reasons for the outperformance include upturn in domestic demand in Asia, better balance sheets and more attractive valuations. We expect this outperformance to continue.

Vasu: What's behind Asia's pick-up in consumer demand?

Roy: There are a number of factors. In the case of Korea, for example, easier consumer credit has contributed to the pick-up in demand. Other factors include low interest rates, improving economic fundamentals and better consumer sentiment.

Vasu: How do you go about picking the stocks in your portfolio?

Roy: We leveraged heavily on the equities research team of Salomon Smith Barney (SSB). We only focused on stocks that are ranked 1 and 2 by SSB. Only those with a market cap of at least US$500 million were selected. We screened them further, choosing stocks which fit into one or more of the three core themes - beneficiaries of outsourcing, leverage to increased domestic demand and global or emerging leaders. We then ranked the stocks according to a set of objective criteria. Basically we are looking for growth and valuation relative to the stock's peers in the sector and its own history. Some of the fundamental factors we look at include price-to-earnings, price-to-book, return on equity and consensus earnings per share growth.

Vasu: What are the risk factors that investors should bear in mind?

Roy: Outsourcing is a long-term theme in Asia, but in the short term, businesses may still be subject to volatility. The other risk factor is the weakness of the greenback. If it continues, this will hurt the competitiveness of export-oriented Japanese companies like Sony and Honda. In the case of Korean companies, the movement of the Korean won relative to the Japanese yen is another factor to contend with as Korean and Japanese companies compete. A third risk worth highlighting, is the risk of a softer-than-expected recovery of the US economy, which could derail a fragile Japanese recovery.

Vasu: If you are concerned bout Japan, why does the fund have such a big exposure to that market?

Roy: There is risk that the Japanese economy may slip back, but as it stands now, the market is looking reasonably attractive. I say that because earnings growth is improving - projected at more than 40 per cent this year and 30 per cent next year. Parts of the Japanese corporate sector is restructuring and seems headed in the right direction. When global recovery kicks in, Japan looks set to benefit as its economy emerges from a prolonged recession.

Vasu: Why have you decided to include only 35 stocks in your examples of stocks?

Roy: We were trying to strike a balance between concentration and diversification. A typical unit trust could have contained between 75 and 150 stocks. Having too many stocks would have reduced the effect of stock selection, yet too much concentration would mean that investors would be over exposed to company specific risks. We felt that anywhere between 25 and 40 stocks would provide a sufficient balance.

Vasu: In Taiwan, you appear to be focused on the technology sector. Any reasons for this?

Roy: It goes back to our selection criteria for picking stocks. As I had mentioned, we like companies that are global leaders and beneficiaries of the outsourcing trend. There are many companies in the Taiwanese tech sector that satisfy these criteria.

Vasu: Does the portfolio have country and sector limits?

Roy: Yes there are internal limits. The internal country limit is 30 per cent and the internal sector limit is 25 per cent of the fund.

*The final number of stocks to be included in the portfolio and stock weighting may vary.

Disclaimers This document does not constitute and offer or solicitation to buy or sell any unit of the Smith Barney Select Asia Opportunities Portfolio. Investors should read the prospectus for detailed information prior to any subscription. Investments in Smith Barney Select Asia Opportunities Portfolio are not bank deposits or other obligations of, or guaranteed or insured by Citicorp Investment Bank (Singapore) Limited , Citigroup Inc., its subsidiaries or affiliates and are subject to the investment risks, including the possible loss of the principal amount invested. The value of the unit may rise or fall. Past performance is not indicative of future performance. The mention of any security, mutual fund/ unit trust should not be construed as representing an investment recommendation to buy or sell that security or mutual/unit trust. Investors purchasing unit investment trusts denominated in non-local currency should be aware of the risk of exchange rate fluctuations that may cause a loss of principal. Not available to U.S. citizens, residents or green cardholders, nor is it available to residents or ordinary residents of Ireland. Distribution of this document may be restricted in certain jurisdictions; persons into whose possession this publication comes should inform themselves of and observe such restrictions.