Limited debt on company balance sheets combined with growing consumerism and domestic investment puts it on a strong footing, and we expect the IMA Asia Pacific sector to bounce back sharply from recent declines.
Among those funds available to UK investors, we think Schroder Asian Alpha Plus and First State Asia Pacific Sustainability are among the best-placed to perform.
Schroder Asian Alpha Plus:
The Schroder Asian Alpha Plus fund aims to build and maximise capital growth by investing in securities in the Asia Pacific region. It can invest in fixed interest securities and real estate investment trusts (REITS), along with investment schemes, warrants, derivatives, deposits, money market instruments and cash, leaving it with a number of options in rising and falling markets.
The fund grew 5.2 per cent over the last year while maintaining a low volatility of 12 per cent over the same period, meaning it has outperformed its peers on a risk-adjusted basis given that the sector average produced a lower gain of 4.8 per cent for 13.3 per cent volatility over the same period. Over three years the fund has returned 59.5 per cent.
The fund is also well diversified, with the top-10 holdings only accounting for 34.6 per cent of the total portfolio. The fund invests most of its money in the financials, information technology and consumer discretionary sectors – with regional exposure across China, Hong Kong, South Korea and Japan.
With South Korea expected to show healthy growth in the next 12 months, and China already considered a dominant power, we expect the fund to continue and/or maintain its growth over the next year.
First State Asia Pacific Sustainability:
The First State Asia Pacific Sustainability fund’s investment process takes account of sustainability themes and issues in the region, which translates to a portfolio of oligopolistic companies such as Singtel, SMRT and Taiwan Semiconductor Manufacturing Company.
To date, the fund has met its objective of long-term capital growth, sporting a return of almost 115 per cent over a five-year horizon – and in the past year provided an impressive return of 9.6 per cent, more than double that of the IMA Sector average’s 5.5 per cent over the same period. This was achieved with a relatively low volatility of 12.8 per cent versus the peer group’s 13.3 per cent.
The fund’s portfolio is diverse. Top-10 holdings comprise only 34.6 per cent of the total portfolio and favour the telecom, media & technology sector – which makes up almost one-third of the fund’s exposure.
Singtel is one major holding and the stock’s earnings per share have doubled from 2003 through to 2011. Moreover, the regional telecommunications giant boasts an impressive long-term record of dividend distributions, with the latest 2011 dividend amounting to 25.8 cents a share or a satisfying 7.7 per cent yield based on a share price of 3.32 SGD.
SMRT, Singapore’s sole subway operator, also meets the bill of a healthy company, with a growth in earnings from 3.8 cents a share to 10.6 cents.
In the realm of semiconductor manufacturing, TSMC continues to find its rhythm after the Japan earthquake and now would be a good time for investors to acquire exposure via the First State Asia Pacific Sustainability fund amid ever growing demand for smartphones.
Our view
Given that turmoil in world markets has flooded the West, investors should seek to build an asset exposure to those areas less riddled with high debts and fear of credit downgrades.
Performance of funds vs sector and index over 3-yrs
Source: FE Analytics
An average Alpha of 7.72 over the last three years indicates that the First State Asia Pacific Sustainability fund is poised for gains in a market upturn, and Beta of 0.81 over the same span of time tells us that the fund will limit losses in the event of a bear market.
The Schroder Asian Alpha Plus fund displays an information ratio of 2.95 – over and above the sector’s average of 1.98 over a three-year period – showing that fund manager Matthew Dobbs has consistently outperformed his peer group.
Dobbs also maintains a low Beta of 0.88 against the sector average, meaning that in a slowing market the fund is less likely to drop at a large rate in relation to its peers.
The views expressed here are those of Platinum Financial Services’ portfolio management team.