Star manager Jason Pidcock is to leave Newton Investment Management and set up a new Asian income strategy at Jupiter, it was revealed today. 
Pidcock, who has built up a strong track record on his £4.6bn Newton Asian Income fund, will join his new company later this year and work alongside Jupiter’s existing emerging markets team (which is headed by Ross Teverson) to build and income-based, larger capitalisation investment strategy focused on Asian equities.
“Jupiter is respected by investors and peers for its strong focus on delivering value,” Pidcock (pictured) said.
“The dividend culture is becoming well established across Asia Pacific and a Jupiter fund offering attractive total returns over the long term should be an appealing proposition for clients. I very much look forward to working with the team to help build this new strategy.”
The news of his departure is likely to come as a surprise to his investors, who have increased in numbers by a significant amount over the years.
According to FE Analytics, his Asian Income fund has been a top-quartile performer in the IA Asia Pacific ex Japan sector since its launch in November 2005 with returns of 184.64 per cent, beating its FTSE Asia Pacific ex Japan benchmark by close to 20 percentage points in the process.
Performance of fund versus sector and index since launch
Source: FE Analytics
While it is bottom quartile over one and three years, it beating its benchmark and sits top quartile over five years thanks largely to the fact it has outperformed in six out of the nine full calendar years since its launch.
According to Newton, the Asian Income fund “will move away from a lead and alternate manager structure to a team-based investment management approach” and it will be overseen by Rob Marshall-Lee – who currently runs the Newton Global Emerging Markets fund.
Of course, investors should make no hasty decisions in terms of their current exposure – such as whether to continue holding Newton Asian Income, follow Pidcock to Jupiter or look for a new fund entirely.
However, for those investors who are considering selling the fund on the back of Pidcock’s departure, we look at other Asia portfolios which could be used as alternatives.
First up is the £578m Schroder Asian Income fund, which carries five FE Crowns and is managed by Richard Sennitt. Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says it is the most like-for-like replacement to the Newton fund.
“It is quite difficult because if you want an income fund for your Asia exposure, there aren’t that many options. There is the Henderson fund which is managed by Mike Kerley or there is Schroder Asian Income,” Morgan said.
“I like the fund and it is quite similar to the Newton fund as Schroders, like Newton, have very wide analyst coverage in the area.”
Following a disappointing period during the build-up to the financial crash, Schroder Asian Income has beaten both the sector and its MSCI AC Pacific ex Japan benchmark in five out of the last seven calendar years, meaning it is now outperforming over three, five and 10 years, according to FE Analytics.
Performance of fund versus sector and index over 10yrs
Source: FE Analytics
The fund also features on the FE Select 100 and the FE Research team particularly like its income characteristics, though they note that recent changes to the portfolio (into more cyclical and lowly valued areas of the market) mean it is more sensitive to the economic cycle than it has been in the past.
“The fund is one of the few focusing on the Asia Pacific which offers income to investors and which has managed to grow that income each year, even through the financial crisis,” the FE Research team said.
Like the Newton fund, Schroder Asian Income has exposure to Australia and New Zealand alongside Asian markets such as Hong Kong, Thailand and Singapore. The fund yields 3.9 per cent and has an ongoing charges figure (OCF) of 0.93 per cent.
For those who prioritise income from their Asia exposure, Morgan says they could turn to the investment trust sector given the closed-ended structure enables trusts to ‘smooth’ their dividends.
His favourite option is Aberdeen Asian Income, which is headed up star manager Hugh Young and his team based out in Singapore.
The trust follows the same quality approach to Young’s more well-known open-ended funds and this has led the trust to outperform its MSCI AC Asia Pacific ex Japan benchmark by more than 30 percentage points since its launch in December 2005.
Performance of trust versus index since launch
Source: FE Analytics
However, the trust has fallen on harder times over recent years due to the manager’s avoidance of Chinese equities and his focus on high quality dividend paying companies with reliable earnings – given that they are viewed as expensive compared to the wider market.
Since the May/June 2013 ‘taper tantrum’ when the US Federal Reserve warned it would reduce quantitative easing, the trust has lost 13 per cent while the index is up 7 per cent.
Nevertheless, its weak NAV performance and the fact its shares have fallen out of favour mean it is now trading on a 2.8 per cent discount to NAV. Data from the AIC shows that, on average, Aberdeen Asian Income has traded on a premium over the last three years.
Kepler’s William Heathcoat Amory recently told FE Trustnet that it was one of his six investment trusts for a “bullet-proof” income, given it has increased its dividend in every year since its launch.
“Over a relatively short period, the board have built up revenue reserves that many trusts of a more ancient vintage might be envious of,” he said.
“Whilst there are clearly headwinds brewing in the form of a China slowdown and a strengthening dollar, we are confident that the dividend will at least be maintained for the foreseeable future.”
Aberdeen Asian Income yields 4.4 per cent, has gearing of 8 per cent and ongoing charges of 1.25 per cent.
BlackRock Global Funds Asian Growth Leaders
Investors may want to use Pidcock’s departure as an opportunity to reassess their Asia exposure.
The reason for that is because while the quality growth approach used by the likes Newton, Schroders and Aberdeen has been highly profitable over the longer term, with economic growth in the region now slowing it may not be the best strategy going forward.
This argument was highlighted by Old Mutual Global Investors’ John Ventre in a recent FE Trustnet article as he thinks now is the time to focus on emerging market managers who have a value style.
“The very successful quality growth managers out there in the market, which we have owned historically, are probably not best positioned to capture the new dynamic in emerging markets,” Ventre said.
Unfortunately, a number of the highest-rated value Asia funds are now closed to new investors such as Prusik Asian Equity Income and Hermes Asia ex Japan. One fund which has a similar approach though is Andrew Swan’s BlackRock Global Funds Asian Growth Leaders fund.
“It is a highly active fund and the manager largely doesn’t care about the benchmark,” Premier’s Simon Evan-Cook, who uses the fund, said.
“Swan is more concerned about finding quality companies and tomorrow’s winners, but he doesn’t want to over-pay for them. This is a great blend. It gives him the discipline to not make silly mistakes, over pay for stocks or buy companies which are critically and terminally weak.”
Despite its short track record, the £320m BlackRock fund has comfortably beaten its MSCI AC Asia ex Japan benchmark since its launch in October 2012 with returns of 72.65 per cent. It sits in the offshore universe, but has beaten the average fund in the IA Asia Pacific ex Japan sector by more than 45 percentage points over that time.
Performance of fund versus sector and index since Oct 2012
Source: FE Analytics
The fund has a high weighting to financials and the technology sector and has a total expense ratio of 1.16 per cent.
Swan also manages the BlackRock Asia Special Situations fund, which sits in the IA universe and is run along similar lines. It too has considerably outperformed since its launch in April last year, but is slightly cheaper with an OCF of 0.96 per cent.