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Four Asia managers with mixed returns in their ‘new’ investment trusts

21 July 2017

In the last of its series, FE Trustnet considers how four managers in the Asian equities investment trust sectors have got on since taking over their investment trusts around three years ago.

By Jonathan Jones,

Reporter, FE Trustnet

Four managers running Asian-focused investment trusts have experienced mixed success having taking on their new mandates since 2014, according to the latest FE Trustnet study. 

Between the start of 2014 and the end of the first half of 2015 almost a fifth of investment companies (18 per cent) appointed a new manager, either as a sole manager or as part of a team.

In the final part of its series, FE Trustnet examines three trusts in the IT Asia Pacific ex Japan sector as well as the China specific Fidelity China Special Situations trust.

Performance of funds since manager start date

 

Source: FE Analytics

Previously we have looked at the investment trust managers in the IT Global and UK equities sectors that took charge during the above period.

 

Fidelity China Special Situations

The first and most high profile change in the period between the start of 2014 and the end of the first half of 2015 was in the four crown-rated Fidelity China Special Situations trust.

Star manager Anthony Bolton retired from the trust in 2014 after launching it back in 2010, with Dale Nicholls then taking over.

Under Bolton, the fund returned 7.08 per cent while the MSCI China returned 0.9 per cent and the IT Country Specialists Asia ex Pacific sector returned 6.04 per cent.

Despite the relative outperformance, this was an underwhelming return from the fund, with the trust being hit hard in 2011 when it lost 37.92 per cent.

Since Nicholls took over the fund in 2014, the fund has returned 108.33 per cent, 37.56 percentage points ahead of the MSCI China benchmark.

Performance of fund vs benchmark since manager start

 

Source: FE Analytics

The £1.1bn trust is considerably overweight consumer discretionary (24.3 per cent more than the benchmark) and industrials (11.6 per cent overweight), while underweight financials (13 per cent). Its largest weighting, however, is to technology.


In its latest factsheet, Nicholls noted: “Broader long-term trends such as the development of the middle class remain in place, and this creates stock picking opportunities.

“There is also great variation in trends between different parts of the economy. The trust remains focused on private companies in ‘new economy’ areas, but continues to look for opportunities in state owned enterprises (SOEs) as well.”

The trust is trading at a 13.5 per cent discount to net asset value (NAV), according to the latest data from the Association of Investment Companies (AIC).

It is 24 per cent geared, is yielding 1.2 per cent and has ongoing charges of 1.16 per cent.

Fidelity Asian Values

While Fidelity China Special Situations was the most high profile manager change during the period, the best performing fund since a new manager took charge of those in the table above is the Fidelity Asian Values.

The £261m, five crown-rated fund is run by Nitin Bajaj, who took over from John Lo in January 2015.

Lo stepped back after 13 years in charge as the board expressed a desire to more to a more small-cap focused strategy.

Since Bajaj took over the fund, it has been the second best performer in the IT Asia Pacific ex Japan sector, returning 65.91 per cent.

This is 22.03 percentage points above the sector average and 22.48 percentage points ahead of the MSCI All Countries Asia ex Japan benchmark, as the below shows.

Performance of fund vs benchmark since manager start

 

Source: FE Analytics

In the latest factsheet, Bajaj said he continues to focus on strong businesses run by able managements available at reasonable valuations, with an objective of compounding money over a three-to-five-year period.  He also remains biased towards smaller companies due to three reasons.

He said: “First, this space provides opportunities to invest in ‘winners of tomorrow’ before they become well known. Secondly, this space is not widely followed by professional investors and hence offers a higher likelihood of finding ‘mispriced businesses’.

“Lastly, with over 17,000 listed companies, there is a lot to choose among ‘winners of tomorrow’ and ‘mispriced businesses’.”

The trust is trading at a 5.9 per cent discount to NAV, according to the AIC. It is not geared, is yielding 1.2 per cent and has ongoing charges of 1.33 per cent.


 

Pacific Horizon

Next on the list is the £151m Pacific Horizon trust run by Ewan Markson Brown, who has been in charge since March 2014.

The manager took over from Mike Gush, who had run the fund for five years, after a period of “unsatisfactory” performance.

Since taking over the fund it has outperformed both the benchmark and sector, returning 76.85 per cent, as the below shows.

Performance of fund vs benchmark since manager start

 

Source: FE Analytics

The fund is currently 35.7 per cent weighted to Hong Kong and Chinese equities, 26.9 per cent in Korea and 17.4 per cent in India.

The trust is trading at a 10.3 per cent discount to NAV, according to AIC data. It is not geared and has ongoing charges of 1.13 per cent.

 

Scottish Oriental Smaller Companies

The final fund is Scottish Oriental Smaller Companies, which has been run by Vinay Agarwal since July 2016.The manager was subsequently joined on the fund by Wee Li Hee at the start of last month.

Since taking over the £323m fund, it has returned 23.04 per cent, the second worst performance in the sector, 10.13 percentage points below the MSCI AC Asia ex Japan.

The fund manager said in the fund’s latest factsheet that emerging market equities have improved this year on the back of improving global growth outlooks, accommodative monetary policies and the resumption of export growth.

However he added: “Whilst all the above is positive, this improved outlook appears to be priced into stock market valuations – particularly for the quality companies we favour.

“When we meet with companies we are being told that volume growth is weak and it is difficult to increase prices given the lack of inflation expectations.

“Earnings growth has improved but in many cases this has been because of falling input costs which is not sustainable.”

As well as this he noted that debt is extremely high, which could impact Asian economies if interest rates rise.

As such the manager said he is focused on the strength of company balance sheets even more than usual with some of its larger weightings in India, Indonesia and the Philippines.

“These three countries have relatively low debt when compared to the size of their economies and recent growth in these domestically-focused countries has come without notable increases in this debt.”

He also holds a higher-than-usual cash position currently (7.5 per cent) as, while he would like to deploy it, he would prefer “more reasonable valuations”.

The trust is trading at an 11.4 per cent discount to NAV, according to the AIC. It is not geared, is yielding 1.1 per cent and has ongoing charges of 1.04 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.