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Two alternatives to the Asia Pacific giants

27 May 2014

Attivo's James Swaby tells FE Trustnet why he is using the Matthews Asia Pacific Tiger and Prusik Asia funds instead of some of their better-known rivals.

By Alex Paget ,

Senior Reporter, FE Trustnet

Investors should consider using the Prusik Asia and Matthews Asia Pacific Tiger funds for their Asia Pacific exposure, according to Attivo’s James Swaby, who has been buying the two portfolios as they are more nimble than their better-known rivals.

Swaby, who is an investment manager at the group, says that though Asia Pacific equity markets have performed poorly compared to developed markets over recent years, it is an area that will inevitably bounce back over due to its long term growth potential.

Performance of indices over 3yrs

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Source: FE Analytics

However, he is shunning some of the leading lights in the sector, such as First State and Aberdeen, for his exposure as he wants funds that can drill down and find opportunities without being hindered by their size.

“Despite a tough couple of years in Asia we still have confidence in the region over the longer term,” Swaby said.

“In fact some of the relative valuations we are seeing make it a strong investment case when coupled with some of the bigger picture changes that are occurring in this massive and diverse region.”

“There will always be some sort of headwind whether that is credit in China or political unrest in Thailand but we try and look past these at the wider environment. That’s not to say we ignore events on the ground but a lot of it can be short term noise which has a knock on effect on valuations,” he added.

Aberdeen and First State funds have historically been the best performers in the IMA Asia Pacific ex Japan sector, with the likes of the £5.9bn First State Asia Pacific Leaders and the $3.8bn Aberdeen Global Asian Smaller Companies funds dominating over the last five years.

However, due to their strong past performance and highly rated teams, the two groups have also attracted huge amounts of investor capital. With both First State and Aberdeen have already closed a number of their biggest funds, Swaby is avoiding the household names in the sector. While he still uses the First State Asia Pacific Leaders fund, he has severely reduced his exposure to Aberdeen's fund.

“Two funds that we have taken positions in recently for our Asia Pacific ex Japan exposure in our balanced and growth portfolios are Prusik Asia and Matthews Asia Pacific Tiger,” Swaby explained.

“Both funds are smaller and more nimble than some of their larger and better known onshore counterparts who invest in the same region. This means that they can enter smaller markets such as the Philippines or Vietnam and take meaningful positions in companies they really believe in.”

“If they were running a fund of three to four billion pounds it is very difficult to enter some of the smaller markets because of liquidity issues.”

His thoughts are similar to those of Premier’s Simon Evan-Cook, who recently told FE Trustnet that he had sold his exposure to his Aberdeen funds due to concerns about capacity.

Swaby also likes the Matthews Asia and Prusik funds because of their management structures.

“When we look at a fund the size is a consideration but frequently we find the way a management team is structured and how its ideas are generated are some of the deciding factors in our fund selection,” he said.

“Whilst it can be advantageous having teams on the ground in different areas, particularly in Asia, we think that the management team and the analysts need to be closer rather than just dialling into regular internal conference calls.”

The $263m Matthews Asia Pacific Tiger fund was launched in February 2011 and is headed up by Richard H Gao and Sharat Shroff.

According to FE Analytics, it has been a top quartile performer in the IMA Asia Pacific ex Japan sector over that time with returns of 19.5 per cent and has beaten its benchmark – the MSCI AC Asia ex Japan index – by close to 10 percentage points.

Performance of fund versus sector and index since February 2011

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Source: FE Analytics

The Luxembourg-domiciled fund has also been considerably less volatile than both the sector and index over that time.

“Matthews Asia, although relatively new to Europe, has been running Asian strategies from San Francisco since the early 90s,” Swaby said.

“Whilst it has a team of analysts that the managers can derive ideas and research from, the ultimate decision making process falls to the management of that fund - usually one or two people. Being based in San Francisco they are much closer to Asia and can meet with company management teams either on their home ground or meet them flying to or from other destinations in the US.”

The fund has an ongoing charges figure (OCF) of 2 per cent.

Prusik Asia has a longer track record, having been launched in October 2005. The $75m Irish-domiciled fund – which sits in the FCA Recognised universe – is run by Heather Manners, who was formerly head of Asia and Emerging Markets at Henderson.

Our data shows that with returns of 94.08 per cent, it has underperformed against its MSCI AC Asia Pacific ex Japan sector since its launch.

Performance of fund versus index since October 2005

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Source: FE Analytics

However, the majority of that underperformance has come about more recently and therefore Swaby isn’t dissuaded. He says it is the type of fund that will benefit when sentiment towards Asian equities turns more positive.

“We like the fact that although it’s a smaller company fund their ideas process is a little different,” he said. ““Looking for ripples in the water” was how it was described to us and the reason behind those ripples – i.e. a one off or a sign of a greater change to come?”

“It has had a tough time in the last couple of months with its exposure to growth stocks having a negative impact but we are confident of the longer term returns that could be generated from Prusik’s strategy.”

Prusik Asia has an OCF of 2.2 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.