Stewart Investors Asia Pacific - a year in review

Kate Marshall | Wed 25 January 2017

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• Asian stock markets staged a recovery in 2016
• The team’s conservative investment approach weighed on returns
• We continue to hold the team in high regard; long-term performance has been impressive

Our view

The Stewart Investors Asia Pacific Fund is managed by a highly-experienced and talented team of portfolio managers. We like their focus on high-quality companies with strong balance sheets and robust cash flows, run by trustworthy management teams. They only invest when they feel share prices are lower than a company’s true worth and with the intention of becoming long-term shareholders. We have confidence in their ability to outperform the wider Asian market over the long term.

Please note this fund, which invests in higher-risk emerging markets, is closed to new investment. We continue to hold the team in high regard and believe changes do not need to be made to an existing portfolio, providing the investors’ objectives continue to be met. For new investment, the Wealth 150 features our favourite funds in the Asia Pacific sector.

Market and portfolio review

Following a difficult 2015, Asian and emerging stock markets staged a recovery last year. A number of positive factors contributed to this, including fears over an economic slowdown in China easing and a rebound in commodity prices aiding resource-rich countries such as Australia. UK-based investors benefited further from the strength of Asian and emerging markets currencies against sterling.

A change in investor sentiment towards the region has seen the share prices of companies in more economically-sensitive areas of the market, such as financials and resource-related sectors, outperform more defensive areas, including healthcare and consumer goods.

The team at Stewart Investors employ a conservative investment approach. They seek quality companies with more defensive characteristics, which they believe will prove resilient throughout a variety of market conditions. This tends to lead them away from some of the more economically-sensitive companies that performed strongly in 2016.

Greater exposure to the consumer goods and healthcare sectors proved a headwind last year, as did stock picking in technology companies, according to our analysis. Investments in India, which delivered a positive return but lagged the broader Asian market, also held back returns. A relatively high level of cash (currently 5.1%) has also weighed on returns over a period when stock markets on the whole have risen. While the fund delivered a positive return of 24.6%* last year, it lagged the wider Asian stock market’s return of 28.7% . Please note this is over a short timeframe and is not a guide to how the fund will perform in future.

Past performance is not a guide to the future. Source: *Lipper IM to 30/12/2016

The fund performed in a way we would expect, however. The team’s cautious approach means we anticipate the fund to underperform a rapidly rising market, but hold up better during times of market weakness. The fund has also tended to be considerably less volatile than its peers and the approach has delivered exceptional long-term returns, although this should not be seen as a guide to future performance.

As long-term investors few changes have been made to the portfolio over the past year, although new investments include Indian healthcare firm Indoco Remedies. The team became less positive in their outlook for Singaporean banks due to some of their lending policies and an investment in DBS Group was sold. Please note this fund is a concentrated portfolio, which enables each investment to have a significant impact on returns however this is a higher-risk approach.

View the key investor information document