First State Asia Focus - why quality control matters
Kate Marshall | Tue 13 August 2019
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- Martin Lau and his team at First State have built a robust investment process over the years
- A focus on quality companies has helped drive performance over the short and longer term
- This fund is one of our favourite choices for investing across Asia
Our view
We think getting to know the manager behind a fund is an important part of assessing its potential and understanding how it might perform in future.
Martin Lau, manager of First State Asia Focus, has invested in Asian companies for more than two decades. We've met him many times over the years in order to get a true understanding of his investment process, one that he's stuck to through thick and thin. It's served investors well over the long term.
While we rate Lau highly, he isn't a one-man band. He's got a good team of investors around him, which follow the same process. They aim to uncover quality companies with the potential to deliver sustainable growth over the long run.
He's also an open and honest fund manager, and is prepared to talk about both what has worked well and what hasn't. It's a quality we like.
We think this fund has great potential and is a superior choice for investing in companies across Asia. It maintains its place on the Wealth 50 list of our favourite funds.
The importance of quality
Quality is at the heart of Lau and his team's investment process. But what does a quality company actually look like?
For the team at First State, quality companies must take into account environmental, social and governance factors. They should cause little, if any, harm to the environment around them or the labour they employ, for example. Over time it's become an increasingly important part of their investment process. And if they don't think a business meets these standards or is doing enough to address a particular problem, then they won't invest.
Other factors are important too. The company must have some sort of advantage that others struggle to compete with, such as a well-known brand or the ability to raise prices for its products without affecting demand from customers. It should also have the potential to grow its earnings, and be run by a reputable management team.
What quality companies are in the fund?
Dairy Farm is currently held in the fund. It's a leading Asian retailing group with around 10,000 stores across 11 countries. Lau likes the fact the company has a long history of family ownership which, along with a robust management team, makes considered and responsible decisions about the business. A relatively new CEO has also helped drive change in company culture.
Going forwards, Lau thinks the business has the potential to expand in markets including Indonesia, Vietnam, Cambodia and the Philippines.
Taiwan Semiconductor is also held in the fund. It makes chips for other tech companies to be used in products like smartphones. It has more than half the share of the global semiconductor market, generates plenty of cash, and has increased the dividends it pays to shareholders in recent years.
The company's also a leader in improving sustainability, including its environmental impact and use of energy consumption.
Please note the fund's investments in emerging markets, such as Taiwan and China, increases risk.
How's the fund performed?
Lau's delivered good returns for investors over both the short and long term.
Over the past year the fund's grown 11.0%* compared with 5.5% for the broader Asian stock market. It hasn't been plain sailing though. Stock markets across the globe have been volatile over this time – they fell towards the end of 2018, for example. But the fund's focus on high-quality companies that can often generate more stable returns helped it hold up relatively well.
Our analysis shows investments in consumer companies, such as Hong Kong beverage company Vitasoy, and the financials sector, including Indian bank HDFC, also boosted performance. Please remember past performance isn’t a guide to future returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Jul 14 -
Jul 15 |
Jul 15 -
Jul 16 |
Jul 16 -
Jul 17 |
Jul 17 -
Jul 18 |
Jul 18 -
Jul 19 |
|
| First State Asia Focus | N/A | N/A | 18.9% | 11.7% | 11.0% |
| FTSE Asia Pacific ex Japan | -0.9% | 18.8% | 23.8% | 5.9% | 5.5% |
Full year data prior to 2016 is unavailable. Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2019
Since launch in 2015 the fund's grown 99.5%* compared with 93.1% for the market. This is a fairly short timeframe, but we're encouraged by Lau's longer-term record in managing other Asian funds. We're excited by this fund's long-term prospects. Like all funds it'll go up and down in value, so you could get back less than you invest.