Fund Fact Sheet
Parnassus Asia Fund
As of December 31, 2013, the NAV of the Parnassus Asia Fund was $15.67, so the Fund
was up 4.47%. This compares to a gain of 1.48% for the MSCI AC Asia Pacific Index
("MSCI Index") and a loss of 2.57% for the Lipper Asia Pacific Region Average, which
represents the average return of the Asia Pacific Region funds followed by Lipper
("Lipper average"). Below you will find a table comparing the Parnassus Asia Fund
with the MSCI Index and the Lipper average for the period since inception on April
You will notice that we are substantially ahead of both benchmarks - by about three
percentage points ahead of the MSCI Index and by almost seven percentage points
ahead of the Lipper average.
Even though we were way ahead of the indices, I really can't brag too much about
our performance. Much of the relative performance was due to the high cash position
in the portfolio for most of the year. While some of the Asian markets had big moves
down this year, we were safely in cash with much of our assets. Since it took us
a while to become invested in stocks, we had the good fortune of being in cash during
much of the time when many Asian markets moved sharply lower. In other words, I
Performance data quoted represent past performance and are no guarantee of future
returns. Current performance may be lower or higher than the performance data quoted.
Current performance information to the most recent month-end is available on the
Parnassus website (www.parnassus.com). Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original principal cost. Returns shown in the table do not reflect the
deduction of taxes a shareholder may pay on fund distributions or redemption of
shares. The MSCI AC Asia Pacific Index is an unmanaged index of Asian stock markets,
and it is not possible to invest directly in an index. Index figures do not take
any expenses, fees or taxes into account, but mutual fund returns do.
This fund invests primarily in non-U.S. Securities. Foreign markets can be more
volatile than the U.S. market due to increased risks of adverse issuer, political,
regulatory, market or economic developments and can perform differently from the
Before investing, an investor should carefully consider the investment objectives,
risks, charges and expenses of the Fund and should carefully read the prospectus
or summary prospectus, which contain this and other information. The prospectus
or summary prospectus can be obtained on the Parnassus website, or by calling (800)
999-3505. As described in the Fund's current prospectus dated May 1, 2013, (as Amended
and Restated September 30, 2013), Parnassus Investments has contractually agreed
to limit the total operating expenses to 1.45% of net assets for the Fund. This
agreement will not be terminated prior to May 1, 2014, and may be continued indefinitely
by the Adviser on a year-to-year basis.
Four stocks each had a negative impact of 10¢ or more on the NAV, while seven
had a positive impact of 10¢ or more on the NAV. Three of the four with the
biggest negative impact are based in Thailand, the scene of massive flooding and
political instability during the year. These calamities pulled down most of the
companies traded on the Thai stock exchange. For the winners, there was no general
theme, as each company had different reasons for its success. Below you will find
a discussion of each company that either helped or hurt the Fund to a substantial
degree. All stock prices have been converted into U.S. dollars for this discussion.
Since the Asia Fund has been operating for less than a year, and most of our stocks
were only purchased late in 2013, the beginning stock prices we quote will be from
the time we purchased the issue, and the last quote will be as of the end of the
The two stocks that dropped the most were Amata Corporation and TICON Industrial
Connection. Amata sliced 16¢ off the NAV, dropping 26.3% in dollar terms from
$0.57 to $0.42, while TICON sank 22.6% from $0.62 to $0.48 for a loss of 10¢
per fund share. Both companies provide land and buildings in Thailand to foreign
corporations for use in manufacturing automobiles, auto parts, electronics and other
products. Floods hurt the operations of both companies, and political instability
also contributed to the slide. Although things look difficult right now, we're holding
onto these stocks, since both companies should benefit from Thailand's position
as a low-cost manufacturing center.
Bank Rakyat Indonesia declined 14.3% from $0.70 to $0.60, cutting 11¢ off the
value of each fund share. The bank is Indonesia's second largest by assets, with
one-third of its lending coming from microloans to small, rural businesses. In 2013,
concerns about Indonesia's current account deficit and the U.S. Federal Reserve's
reduction in its stimulus program weakened the Indonesian rupiah and depressed the
company's stock. Most of the stock decline was due to currency translation (weakening
of the rupiah against the dollar). Bank Rakyat continues to gain share among small-
and medium-sized businesses, which should increase earnings next year.
Thanachart Capital, the fifth largest bank in Thailand, sliced 10¢ off the
NAV, as its stock dropped 16.8% from $1.19 to $0.99. Growth in automobile loans,
which accounts for just over half of Thanachart's volume, slowed in 2013 as a weaker
Thai baht reduced consumers' ability to purchase new cars. The bank also adopted
stricter loan policies to reduce credit losses in the future, which also had the
effect of reducing earnings this year. Since acquiring Siam City Bank in 2010, Thanachart
has been reducing its dependence on the competitive auto loan market. Continued
growth in corporate, small-business and mortgage-loans should diversify the bank's
income, providing support for this undervalued stock.
Fortunately, we had more winners than losers. Biostime International Holdings, a
Chinese distributor of foreign-made infant formula, saw its stock soar an amazing
81.5% from $4.92 to $8.93 for a gain of 27¢ for each fund share. In August,
a competitor of the company was forced to recall supplies of possibly contaminated
milk, which burnished Biostime's image as a purveyor of safe, high-quality products.
Also, late in the year, the Chinese government relaxed its one-child policy, and
Biostime acquired a factory to produce formula domestically. Both developments helped
the stock, since they significantly expand the company's already fast-growing customer
21Vianet added 19¢ to the NAV, as its stock climbed 36.2% from $17.27 to $23.52.
Aside from telecommunications carriers, the company is the largest provider of Internet
data-centers in China, with 80 centers located in more than 40 cities across the
country. 21Vianet has entered into a strategic partnership with Microsoft to provide
Office 365 and Windows Azure service through the cloud to over 2,000 customers,
who are willing to pay a premium for secure, reliable and scalable data services.
Strong demand for cloud services in China caused a surge in profits this year and
should continue to benefit the company going forward.
KDDI Corporation, the second largest telecommunications company in Japan, saw its
stock jump 26.1% from $48.87 to $61.62, boosting the value of each fund share by
19¢. Part of the reason for the stock's move higher was the strong performance
of the Japanese stock market, aided by the easy-money policies of the Bank of Japan,
but the company achieved record net profit, because of strong sales of smartphones
and the resulting higher usage fees. KDDI has pioneered some innovative strategies,
such as selling older models of Apple iPhones at a steep discount and encouraging
trade-ins of Wi-Fi only iPads for new cellularenabled iPad minis. In both cases,
KDDI is winning over users with its high-speed LTE network, and they're willing
to pay hefty monthly fees for large volumes of data.
Samsung Electronics contributed 12¢ to the value of each fund share, as its
stock price rose 15.3% from $1,129.35 to $1,302.62. Worldwide, the South Korean
consumer-electronics giant ranks first in sales of mobile phones and second behind
Intel in semiconductors. Although Samsung lost a couple of patent battles with Apple,
its Galaxy 4 smartphone is outselling the iPhone, and the company continues its
strategy of rapid product innovation with different-sized tablets, wearable smartphones
and bendable screen displays. With strong distribution in both developed and developing
markets, Samsung is poised for higher earnings, when it creates the next "must-have"
The stock price of Rakuten climbed 20.7% from $12.37 to $14.93, lifting the value
of each fund share by 12¢. Based in Japan, Rakuten is an international online
shopping mall with tens of thousands of merchants and also a major player in online
financial services including securities brokerage and credit-cards. In Japan, e-commerce
reaped the benefits of improved customer demand this year, while the effects of
the government's stimulus program (known as Abenomics) gave the company a boost.
Operations in Taiwan, Thailand, Malaysia, and especially Indonesia, performed well,
strengthening Rakuten's presence in Southeast Asia's fast-growing markets.
Lenovo increased the Fund's NAV by 11¢, as its stock price climbed 25.8% from
$0.97 to $1.22. (Because they are more liquid, we own the Hong Kong-listed shares,
as opposed to the US-listed ADR's; one ADR is equal to 20 shares with a value of
$24.40 at year-end.) This maker of personal computers (PCs) and other technology
products is the number one brand in China, and this year it surpassed Hewlett-Packard
as the largest PC manufacturer in the world. Although investors are concerned that
the PC market may be contracting, Lenovo was able to gain market share and keep
its PC sales growing, while protecting profitability with low-cost manufacturing.
The company has also expanded its product line to include smartphones and tablets,
and now sells more mobile devices than PCs. Lenovo plans to sell its phones and
tablets in more developed markets such as the U.S. in the near future, a strategy
that should extend the company's track record of profitable growth.
Applied Materials, the big maker of equipment used in semiconductor-manufacturing,
added 10¢ to each fund share, as its stock gained 12.2% from $15.77 to $17.69.
Although based in Silicon Valley, Applied has announced a merger with Tokyo Electron
and will have more than half its sales in Asia. The company had a strong start in
2013, as robust demand from chipmakers and manufacturers of flat-panel displays
helped earnings and pushed the stock higher. The big event, though, was the announcement
that Applied would merge with Tokyo Electron, a rival Japanese maker of semiconductor
equipment. The stock moved higher on the news, since the combined company will benefit
from a wider customer base, enormous cost savings and much more pricing power.
Outlook and Strategy
Those of you who read the results of the other Parnassus Funds discussed earlier
in this report may have noticed that three of the Parnassus Funds each earned more
than 30% this year, including the Parnassus Fund, the Parnassus Equity Income Fund
and the Parnassus Workplace Fund. Other shareholders may have noticed that the Japanese
stock market was up 49% this year, so why wasn't the Parnassus Asia Fund up more?
The short answer is that except for Japan and Taiwan, all the Asian countries where
we have holdings were down. Also, for an American investor, Japan's stock market
gain is not what it seems. While Japan's Nikkei Index was up 49%, that is measured
in yen terms. Since the yen fell about 19% against the dollar, that meant the gain
for Americans in our currency was only about 25% - not bad, but not 49%. (All results
in the Parnassus Asia Fund are translated into dollars.) Although we have some Japanese
stocks in our portfolio, and these did well for us, only about 12% of our assets
were in Japan.
The most important factor, though, is that, on balance, the Asian economies are
not doing as well as the American economy and the stock markets reflect that. Although
the U.S. economy has been slow to recover, it is recovering and things are improving
here more than in Asia. Last year, the Hong Kong stock market dropped 2.8%, Indonesia
was down 4.7%, Singapore was down 0.2%, South Korea was down 2.9%, Thailand was
down 13.1% and China was down 10.2%. Although Taiwan was up 12.1%, its currency
was down 3.4% in relation to the U.S. dollar, so the return expressed in American
currency was only 8.3%.
I expect most Asian markets to do much better in 2014 than they did in 2013. The
real wild card is Thailand. It has a welldeveloped economy, and its costs are among
the lowest in Asia, so I believe it should thrive in 2014. The difficulty is that
there is a lot of political instability in the country, with the opposition party
known as "yellow shirts" conducting strong, and sometimes violent, protests against
the government party known as "red shirts." Right now, it looks as if this instability
might affect the tourism industry, which accounts for 12% of the economy. If the
political situation improves, the economy could be strong and the stock market could
soar, since valuations are very low right now.
I think all the other Asian stock markets where we have holdings should do better
in 2014 than they did in 2013. (Japan is the exception since it ran up so much in
2013. I expect it to do reasonably well in 2014, but nothing like the 49% it gained
in 2013). Asian economies tend to follow the U.S., since the U.S. buys so many products
from Asia. Most of the companies in the Fund's portfolio have strong links to the
American economy, so if the United States does well, I believe Asia should do well,
Billy Hwan, our senior research analyst, and I visited Asia twice last year, as
did Maria Kamin and Rachel Tan from our ESG team. Billy and I visited over 50 companies
in Asia, and we also attended two investment conferences in that part of the world.
This has given us a much better view of various Asian economies than we had a year
ago, and we've found some good companies to invest in.
Billy is a graduate of Stanford University and the Haas School of Business at the
University of California, Berkeley, and he has also had some terrific Asia experience.
He worked at the Government of Singapore Investment Corporation, studied and worked
in Japan, as well as studied for a year in Taiwan. He has been invaluable to me
in terms of finding good investments for the Fund.
We cannot predict the future of the stock markets in Asia or chart the direction
of the Asian economies next year, but we do have the ability to find good companies
and invest in them. We are optimistic about the prospects for that part of the world,
and if we're right, the Fund should do very well in 2014.
Jerome L. Dodson
The information above represents the Letter from Parnassus Investments, management's
discussion and analysis of fund performance, and Responsible Investing Notes as
excerpted from the Report. Please click on the "Full Report" link above to view
the Report in its entirety.