First State Asia Focus - one of 2018's best Asian funds
Kate Marshall | Fri 25 January 2019
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- A quality Asian fund run by one of our favourite fund managers
- Asian markets were weak last year, but the fund held up well
- The manager expects even more interesting opportunities to invest in China over time
Our view
There are only a handful of managers we think are truly exceptional. Martin Lau, manager of First State Asia Focus, is one of them.
Lau has more than 20 years' experience investing in Asia and has managed funds at First State since 2002. Over this time he's used a disciplined investment process, with 'quality' at its heart.
He thinks the people at the core of a business can make or break it. A quality management team with the right amount of motivation, a sensible attitude to risk, and a clear and focused strategy can be the key to a company's long-term success.
The products or services a company sells is important too. They should do or offer something that makes them stand out from the crowd and difficult to compete with.
Lau has shown an ability to identify these companies time and time again. More often than not they've gone on to perform well and his funds have delivered exceptional returns for long-term investors. Past performance isn't a guide to future returns though. The manager also has the support of a talented team of other analysts and portfolio managers to help him.
We think this fund is a great choice for broad exposure to Asian markets. The fund features on the Wealth 50 list of our favourite funds.
Performance – a review of 2018
Asian stock markets fell last year, like most global markets. The potential for a full-blown trade war between the US and China, and slowing economic growth in China, were two of investors' main concerns.
US dollar strength and rising interest rates didn't help either. Interest rates fell sharply following the 2008 financial crisis and allowed companies to borrow money in US dollars cheaply. But rising rates could make debts more expensive to pay back.
We're pleased the fund held up much better than the broader Asian stock market and most other Asian funds over the year. It fell 1.6%*, but falling less than others puts the fund in a stronger position when markets rise again. A focus on quality companies means we expect the fund to do hold up better in weaker markets over the long term too. This isn't a guide to how the fund will perform in future though.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 13 -
Dec 14 |
Dec 14 -
Dec 15 |
Dec 15 -
Dec 16 |
Dec 16 -
Dec 17 |
Dec 17 -
Dec 18 |
|
| First State Asia Focus | n/a** | n/a** | 24.7% | 26.3% | -1.6% |
| IA Asia Pacific ex Japan | 9.5% | -3.0% | 26.6% | 24.6% | -9.0% |
Past performance isn't a guide to future returns. Source: Lipper IM* to 31/12/2018.
**Full year performance data for this period is not available.
It wasn't all plain sailing. The Chinese stock market was one of the weakest, so some of the fund's investments here didn't do so well. Martin Lau used this as a chance to add to high-conviction investments at cheaper prices. This includes Shanghai International Airport, ENN Energy and Midea Group, which makes electrical appliances.
It hasn't been easy for foreign investors to invest directly in Chinese companies in the past as the government put tight controls in place. But this is changing and China's markets are gradually becoming more accessible to overseas investors. With around 4,600 companies available, Lau sees this as a great opportunity and expects to invest more in China over time.
Elsewhere, around 20% of the fund is still invested in India. The government has introduced plenty of reform in recent years, and this could present new opportunities for businesses to grow. Lau recently added a new investment in Cognizant Technology Solutions, which provides IT services to other companies. He thinks the company will improve its profits from current levels, and bought shares at a lower price than what he believes to be its true growth potential.
Looking ahead Lau remains cautious. There's lots of risks in the market at the moment. But there's plenty of opportunity too. He remains focused on companies that could benefit from longer-term trends, like growing demand for consumer goods, which tend to be less affected by what's going on in the wider economy. He thinks this type of business will deliver more stable growth over the long run. We think this is a sensible approach, especially when it comes to investing in higher-risk areas like emerging markets.