“We feel better placed overall given what’s going on in the markets,” he said. “As we’ve seen, performance can turn around anytime.”
“We’ve had three significant periods of underperformance since we launched the fund in 2005. Each of them lasted between five and seven months. One was in 2007, one was in 2009 and the third of course was last year.”
“After each of those, we did then have quite a prolonged period of strong performance. So we’re expecting that that will happen again. It certainly feels that this is a better environment unless something odd comes out of the blue.”
Data from FE Analytics shows the fund was bottom-quartile in 2007, returning 19.79 per cent while the IMA Asia Pacific ex Japan sector made nearly twice the returns, at 36.79 per cent. The FTSE Asia Pacific ex Japan index was up 27.15 per cent that year.
Again in 2009 the fund lagged the sector and index and in 2013 Pidcock’s portfolio lost 0.11 per cent. The sector and index were up 1.85 per cent and 1.32 per cent, respectively.
However, helped by being an income portfolio, the fund also protected better in the down markets of 2008 and 2011 and roared ahead in 2010 and 2012. So far this year the fund is up 4.38 per cent, nearly four times that of the sector and more than doubling the returns of the index in 2014.
Year-to-date performance of fund vs sector and index
Source: FE Analytics
“[The outperformance] is due to the bounce back of some of the stocks that we own that were oversold between May and November last year,” he said. “Many of the REITs (Real Estate Investment Trusts), some of the telcos and year to date we haven’t owned any of the social media or internet stocks which did outperform a lot last year.”
“They’ve started rolling over as valuations have got quite stretched. So it’s not owning some of the stocks which have underperformed the most, which caused underperformance in the fund last year.”
Over the long term, the fund has outperformed its peers and the index, picking up 138.17 per cent over the last five years.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Pidcock says the fund’s dividend, which currently stands at 4.61 per cent, has dipped in sterling terms, owing to the strength of the UK currency. However, he thinks there is a natural hedge in the fund through the Australian dollar, so he does not think he should hedge back to sterling in the portfolio.
“What has capped the payments that the fund has made is the strength in sterling. Sterling of course has been strong in the second half of last year and that has held up so far this year. The translation effect meant that in sterling terms the payment we made for the full year last year was down very slightly,” he said.
He adds that in local currency terms, the fund has continued to grow its dividend.
“But in local currency terms, earnings and dividend growth has been quite healthy for the companies that we own. We think that will continue through the year. If sterling’s strength as a factor drops out of the equation in the second half then we would hope to get back to see dividend growth for the fund.”
Newton Asian Income has ongoing charges of 0.82 per cent. In terms of growth in Asia, the manager remains wary of China where he says there is overcapacity and a hole in the banking system.
However, he is extremely bullish on the Philippines, which he thinks will outstrip the rest of the emerging market economies and indeed that of the developed world in terms of growth over the next 10 to 20 years.
“In the Philippines, politics has definitely improved over the years and the outlook for that economy and market looks so much better because we have a better political landscape,” he said.
“I continue to believe the Philippines will be one of the best performing markets in the world, as of course in Asia, over the next 10 to 20 years.”
He says the demographic story in the Philippines is one of the best in the world, with a rising consumer economy coupled with a strong grasp of English, which makes the country attractive for businesses like call centres.
Pidcock says the island nation has surpassed India in terms of the number of call centres based there.
“There is a lot of low-hanging fruit in my view,” he said.
Pidcock adds that he has no exposure to India because the political landscape is too muddled to allow for true change for companies. He points out that it is difficult to find strong and growing dividends from companies in the country.
Pidocock says he sold one stock in the fund in the last quarter – Coca-Cola Amatil in Australia, which is one of the largest bottlers of carbonated soft drinks in the Asia-Pacific region.
“They came out with a profit warning which disappointed the market and us. Despite the falls in the share price we decided to sell out because it does seem that they have an entrenched problem in that carbonated soft drinks, sugary drinks are very much going out of fashion with increasingly health conscious drinkers.”
“The company, despite the strong positions of the brands that it has, hasn’t been able to address that.”
Pidcock still holds a large portion of the fund in Australian stocks, including Sydney Airport, Australia & New Zealand Banking Corp and retail conglomerate Wesfarmers.
The fund is tipped toward financials, with 30.6 per cent invested in the sector. Telecommunications, media and technology stocks make up the second largest holding, at 22.12 per cent, according to FE Analytics.