McQuaker, who heads up Henderson’s multi-asset range, has a valuation driven approach and has been gradually rotating his portfolios away from funds that have performed well over recent years and into “unloved” sectors and regions which have lagged.He recently told FE Trustnet that he had chopped down his exposure to UK small caps funds like Schroder UK Dynamic Smaller Companies and CF Miton UK Multi Cap Income.
However, he has also exited his European positions such as Schroder European Alpha Income and Artemis European Growth, because he says valuations have increased substantially over the past two years and investors are becoming over-optimistic about future economic growth.
One area he does expect to perform well for him, however, is the Asia Pacific ex Japan region; which has materially underperformed the likes of Europe and the US over the last three years.
Performance of sectors over 3yrs
Source: FE Analytics
“Most of that money has gone into Asia, which has been left behind recently. We think it looks attractive and somewhere you want to be now,” McQuaker (pictured) said.
To gain core exposure to that market, McQuaker has recently added the five crown-rated First State Asia Pacific Leaders fund. The manager rates the £6.5bn fund due to its focus on quality, cash generative companies and because of its highly experienced manager, Angus Tulloch; who is also an FE Alpha Manager.
Tulloch has managed First State Asia Pacific Leaders since its launch in December 2003.
According to FE Analytics, it has been the second best performing portfolio in the IMA Asia Pacific ex Japan sector over that time with returns of 345.47 per cent, beating its benchmark – the MSCI AC Asia Pacific ex Japan index – by 116.29 percentage points.
Performance of fund vs sector and index since Dec 2003
Source: FE Analytics
The fund has also been top quartile over rolling three, five, seven and 10 year periods; having only underperformed in two of the last 10 discrete calendar years.
One of those was last year, when the fund was third quartile with returns of 0.38 per cent. An FE Trustnet article last year highlighted that the fund’s overweight position in India was one of the main drivers of those meagre returns.
However, following the country’s recent election, Indian equities have bounced back in 2014. This has helped First State Asia Pacific Leaders’ top quartile returns year to date.
The portfolio is a firm favourite with fund researchers and analysts.
It sits on the FE Select 100 and features on all the FE Fund Adviser Indices (AFIs). Square Mile, the investment research company, lists the portfolio on its Academy of Funds and the group awarded the fund with a AAA rating.
According to FE Analytics, there are 40 IMA funds that count First State Asia Pacific Leaders as a top 10 holding; including the likes of the Jupiter Merlin Worldwide Portfolio and the Margetts Venture Strategy fund.
Tulloch’s largest regional overweights are India, Australia and Hong Kong and the fund also has a healthcare and telecoms bias. The ongoing charges figure (OCF) is 0.89 per cent.
“The other place we have been adding to is Korea,” McQuaker said.
“We have bought the Korean index and the genesis of that is that the authorities have brought in quite a significant package of reforms which is focused on growth.”
“Companies in Korea are generally very cash rich and have strong balance sheets. The Korean government has been concerned that too much spending power is locked away in the corporate sector.”
“Companies are now being incentivised to spend or pay out higher dividends to investors. This will have a direct impact on the stock market but, over time, it should also begin to impact on economic growth.”
To gain that exposure, McQuaker has bought the Kospi Future. Though the manager is bullish on the country’s equity market, the MSCI Korea has been very volatile this year and is currently only up 1.39 per cent in 2014. However, McQuaker expects those returns to pick up substantially from here.
Performance of index in 2014
Source: FE Analytics
Investors who want direct exposure to South Korea could go down the passive route as there are a number of exchange traded funds (ETFs) which track the market, like the iShares MSCI Korea UCITS ETF and the HSBC MSCI Korea ETF.
Actively managed funds such Invesco Korean Equity, JPM Korea Equity and Baring Korea are available on various fund platforms as well.
There are also a number of non-country specific active managers who are overweight the region. Our data shows that Skagen Kontiki, Baillie Gifford Emerging Market Leading Companies and Fidelity South East Asia all have more than 20 per cent of their assets invested in Korean equities.
McQuaker has managed funds in the IMA universe since July 2005 and over that time has returned 65.08 per cent, beating his peer group composite which has returned 34.82 per cent.
As head of the multi-manager team at Henderson, McQuaker heads up various funds of funds such as Henderson Multi Manager Distribution, Henderson Multi Manager Diversified, Henderson Multi Manager Absolute Return and Henderson Multi Manager Income & Growth.
