Important information: 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.
Asia has long been an exciting investment prospect for growth-hungry investors. But, over the past few years, the continent has shifted from promising upstart to a primary driver of global markets for the future.
Investors are certainly drawn to the sheer breath of opportunity available here. The huge economies of China and India seem set only to swell as their growing middle classes become less reliant on Western exports. Exciting emerging markets like Singapore’s house hidden value opportunities in some of the world’s fastest-expanding domestic economies.
An abundance of options like these is great - making sense of how to access them, however, can require an expert hand. For those looking to increase their exposure to the region, our Select 50 offers a number of funds which invest principally in Asia. Here are three - for the full range, look here.
This conservatively managed fund relies on a highly experienced team to select high-quality, mid to large-sized companies which are most likely to generate long-term outperformance across the region.
For fund managers David Gait and Sashi Reddy, sustainability is a key consideration in their stock-selection process. They look to invest in companies purposefully working for the good of the environment and the global community. Theirs is a very ‘hands-on’ approach - in determining companies’ sustainability credentials, these managers hope to get to know their stocks’ management teams first-hand, often visiting sites and building up reference checks from suppliers and competitors among other sources.
This approach draws the managers to companies which stand out for their ‘social usefulness’ - i.e. ones that provide goods or services that society actually needs, and so stand to benefit from rising consumption levels across the region.
One of the fund’s largest holdings, Marico, a manufacturer of coconut oil for hair nourishment which then expanded into health foods, well demonstrates this approach. In Reddy’s eyes, when the company expanded its business to cover healthy cooking produce, it was “ahead of the curve and saw the need for Indians to evolve their consumption habits.”
He explains how Marico has “a good track record of building fantastic brands, of having an astute focus on profitability and the quality of ownership is fantastic as well. It’s companies like these that really attract us.”
Broader economic developments are taken into consideration in the fund, but the focus here lies on high quality management, robust balance sheets, and high levels of capital preservation. Though this may not be a fund to soar through market highs, the managers’ conservative approach should position it well to perform through downturns.
Headed by fund managers Ian Heslop, Amadeo Alentorn and Mike Servent, this fund seeks to provide investors with capital growth by putting prospective stocks through a rigorous selection process in order to determine a reliable return forecast for each. They operate on the belief that markets are not fully efficient - i.e. there will always be divergences between stocks’ fundamental values and the trading prices skewed by investors’ biases.
The managers use a quantitative investment approach to compose a portfolio which they feel is likely to outperform in the current economic environment. They keep their selection process dynamic and flexible, continuously monitoring the market, so that they can consistently capture prevailing conditions and outlook in the portfolio.
Theirs is a large portfolio - it currently holds around 247 names - and its top holdings offer investors exposure to some of the region’s best-known growth giants. The top two positions in the portfolio are held by Alibaba and Tencent respectively. Both these companies exemplify the sort of technology stocks which have pushed China’s economy to new heights in recent decades.
What’s more, large Chinese companies like these have profited from the same sort of lockdown-imposed demands on technology that Western investors may recognise in the extreme market outperformance of US tech stocks like Apple and Microsoft.
Alibaba has stepped in to meet increased demand for online shopping and cloud computing, while Tencent, the world’s largest video game company, has played the ‘Netflix’ role of fulfilling the need for home entertainment.
Unlike the two above, this fund has an overt value-orientation which sees its manager, Geoff Bazzan, look for companies across the region which are currently trading below their intrinsic value.
But, much like the other two, Bazzan’s is a conservative approach. He and his well-resourced team of experienced analysts spend a lot of time focusing on companies’ fundamentals - analysing their balance sheet strength, dividend support, etc. - before making any moves to invest.
As a value investor, his first thought is given to stocks’ potential downsides - he wants to know the worst-case scenario, in case the company’s outlook gets worse and it fails to recover. Once he is comfortable with what may be lost, he looks to how much can be gained - that is, if the stock picks up, how much upside opportunity does it present?
He couples his value-focus with a long-term investment horizon, all the while taking a contrarian angle to stock-selection which he hopes will allow him to find opportunity that goes against the popular consensus. He conducts bottom-up analysis of individual stocks to determine whether their intrinsic value has yet to be reflected in their price.
In Bazzan’s eyes, this approach is particularly well suited to quickly expanding economies like China’s, where he feels that macroeconomic growth rates skew investors’ perspectives and leave companies undervalued. For him, “there is a lot of evidence to suggest that companies often perform much better than what the headline data might suggest.“
This value-orientated, contrarian approach means the fund is uniquely positioned to find opportunities amid periods of market downturn, when uncertainty presents attractive valuations to quality companies which are well poised to recover their value in later upturns.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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.
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