Maple-Brown Abbott might not yet be a household name among UK investors. The Sydney-based boutique has 54 staff running its operations from down under and focuses on investing in global infrastructure, as well as Australian and Asia Pacific-listed equities. And it is the latter opportunity set which informs portfolio selection for the Maple-Brown Abbott Asia Pacific ex-Japan Fund, part of the Fidelity Select 50.
Manager Geoff Bazzan takes a value approach to investing in the region, looking for companies currently trading below their intrinsic value, however there is ample attention given to reducing the risk of falling into so-called value traps.
Bazzan explains: "We tend to be conservative. We ask a lot of questions regarding the downside of prospective investments before we consider how much money we could make. We focus a lot on things like balance sheet strength, dividend support, and as long-term investors we often tend to be contrarian. We’ve found the best opportunities to generate good long-term returns is through buying in periods of great uncertainty or market weakness."
The Asia Pacific area gives the manager one of the largest regional collections of potential additions to the portfolio - the scale of which the manager acknowledges and looks to whittle down at once.
He explains: "Including China’s A-shares, there are almost as many companies listed in the Asia ex-Japan region with a market value greater than $1billion than there are in the US and Europe combined. We use a number of quantitative screens to direct us to areas of the market that might be worthy of further qualitative fundamental research by our analysts."
So, are emerging market companies that different from their developed market neighbours?
For Bazzan, the similarities are greater than the differences, meaning the analysts at Maple-Brown Abbott study the same factors driving company valuations in Asia as they do elsewhere.
However, Asia does throw up its own challenges, as the manager explains: “One difference is that Asia can be more of a cyclical region by virtue of reliance on trade or more cyclical industries, so that can make earnings more volatile and make share prices more volatile as a result. As fundamental long-term investors, that can present opportunities to buy but it means we also need to be cognisant of when to sell. Across the region there are 14 different markets so you have currencies and country-specific factors to consider but fundamentally we are investing along the same premise as we do in Australia."
In fact, comparing emerging and developed markets and their presence in the portfolio is becoming less important for the manager, who points to the closing gap between Eastern and Western economies. He says: "I have to say, if you've visited places like Korea or many cities in China recently, it would be hard not to conclude that they are very developed in most respects."
With around 45% of the portfolio exposed to China, the manager is looking beyond current trade tariff headlines, stricter credit controls and national growth rates in the country, and is focusing more on the country’s continued transition away from being the world’s toy factory to a nation of consumption.
Bazzan explains: "The extent to which they can manage that transition towards a domestic consumer-based economy is only a positive I think, for the long-term sustainability of China’s growth. We tend not to be too focused on headline growth rates on a macroeconomic level - there is a lot of evidence to suggest that companies often perform much better than what the headline data might suggest."
More on the Maple-Brown Abbott Asia Pacific ex-Japan Fund
The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.