Contrary to what he's taught, individual investor Charles Chan uses market timing to achieve his target of absolute return.

CAN you make an absolute return from relative return vehicles like unit trusts?

Here's an individual investor who says he has achieved just that, through a strategy that practically all investment consultants and financial advisers would warn you against - market timing.

Self-professed 'house-husband' Charles Chan, a former professional proprietary trader, spends around five hours a day watching markets and his portfolio of unit trusts (besides minding his brood of three, shuttling them to tuition sessions and tending to the pot on the stove, while his wife works at a bank).

The 39-year-old, who will only say that his portfolio is 'modest', has set his sights on an absolute return of 30 per cent a year. So far, his annualised return since 1998 is in excess of that. His single negative year was in 2001 - negative 9 per cent - when he was whipsawed by market volatility.

'2001 was my worst year,' he laments. 'The currency, bond and equity markets weren't going anywhere, just range trading and swinging around. I got caught in between.'

His portfolio is completely in unit trusts, some locally registered and others offshore. Why not direct investments in stocks? 'The reason is that I have a simplistic mind,' he says. 'I cannot handle the number crunching required to research individual stocks. I like to see the big picture.'

Mr Chan believes that for long-term investments, funds are a logical vehicle. 'You have a diversified investment. The fund manager professes to be an expert on stock picking, but I'm not. My expertise is market timing. Why not allow the guy to do what he's good at and make full use of that?'

Your cup of tea?: But first, a health warning - lest anyone think they can replicate what Mr Chan does at the drop of a hat. He says it's 'near impossible' for the average person to do what he does. 'You have to spend time on research. The learning curve is years not months. I'm the exception in the sense that the market is in my blood. Wherever I go I can't just leave the market aside. If I go on holiday I take my notebook along and go through the routine of checking on markets - just to have an idea of what's going on.'

But what may be particularly unique - and for sceptics, hard to swallow - is that Mr Chan also taps astrology to help him interpret markets. Not the weekend variety of birth signs, but 'serious stuff', he adds. 'Astrology, plus the ability to interpret economic and market cycles, the two work together. The more I study it, the more I realise how important it is to our daily life.'

So what bets has Mr Chan taken so far? In 1995, after he left full-time work, he traded futures on his own. But he abandoned that because he found it too time-consuming. He moved his money into funds around 1998, and the sharp recovery of Asian markets gave him turbo-charged returns of over 100 per cent.

'There were two years I made slightly over 100 per cent. That was possible because in 1998 and 1999 after the Asian crisis, markets were ridiculously cheap,' he says. 'You put in money and just waited. The KL index had fallen from 1,200 (in mid-1997) to less than 300 (in mid-1998). To go from 300 to 600 could happen in the blink of an eye. That's where you get the maximum return.'

After a relatively poor year between 2000 and 2001, he put all his money into euro money market funds, starting in 2001. 'In 2001, when the euro was very weak, I was one of a minority who was a bull. I put literally my whole portfolio in euro cash or currency funds and just waited. I didn't see the equity or bond markets going anywhere.'

Late last year, he switched his money into European bond funds, partly for the euro currency exposure. Just before the US attacked Iraq, he switched completely into equities. His portfolio now is 70 per cent in European equity and 30 per cent in US equity. He is now, however, waiting for an opportunity to switch back into bonds or cash.

In the medium to longer term, he reckons global markets will 'go nowhere' for a while before they shift to a fresh bull cycle sometime around 2008 or 2009. 'Unfortunately we're in a period that requires you to be very very nimble,' he says. 'For those who do not watch the market, it's hard to trade on your own.'

In the near term over two to three months, he expects markets to stage a quick rebound, at which point he will look to exit into cash or bonds. 'The US will win this war. The question is when,' he says. 'Right now there are some hiccups, but eventually it will be over. Then people will get euphoric and start talking about how fantastic the economy will be. That's when I get out. As far as the world economy goes, nothing has changed.'

What about the popular concern that bonds have peaked? 'No, we're in a period where global economies will remain very slow, very soft. And we have deflation, coming out from China,' Mr Chan says. 'If China can't export to the US, it will dump into the rest of the world. And that's killing the world economy.'

Useful tools: Except for astrology, the other main tools of his trade are simple. The Internet, for instance, through which he watches markets, economic data and buys funds. For those who want to understand how to read business cycles, he recommends a book - Strategic Market Timing: Investing at Predictable Turning Points in the Business Cycle, by Robert M Bowker. The book is out of print, but you can order used copies at Amazon.com.

Market timing, Mr Chan says, 'is a question of whether you can catch the big economic cycle'. 'If you're unable to differentiate the cycle, it will be hard to make money.'

He is keenly aware that his investment style is frowned upon by consultants as risky and dangerous. 'Consultants are against the idea of market timing. Academics too. It's against everything I learned in school. My style is closer to a macro hedge fund style. I look for the turnaround in a particular asset class. When I go in, I go in a very concentrated way. I take a 100 per cent bet. Academics and consultants would say that's ridiculously risky. What they don't look at is how much more downside is there, compared with the upside. I'm looking from the angle of the risk/reward ratio. There may be little risk because an asset has been down a lot, but a huge reward.'

As for his choice of funds, he says what's important is that a fund manager outperforms his benchmark. Most unit trusts are relative return funds where success is measured against an underlying benchmark. In contrast, an absolute return fund targets a positive return. Such funds are not limited to hedge funds. A traditional unit trust may also have an absolute return orientation when a manager times his entry in and out of asset classes like stocks, bonds and cash.

He says he'd love to rejoin a funds management group, but family commitments take precedence. He did a brief stint with OCBC Asset Management between November 2000 and July 2001, looking after an absolute return unit trust.

Does being a house-husband bother him? 'I know who I am, what I'm capable of. I don't really care what people think. When people ask me what I do, I just say 'house-husband'. Some people may think 'what a worthless guy'. But they don't know what else I do at home.'

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